In re Papi, Bankruptcy Case No. 09 B 12379 (Bankr. N.D. Ill. 5/4/2010), Bankruptcy Case No. 09 B 12379.
| Decision Date | 04 May 2010 |
| Docket Number | Adversary Case No. 09 A 00786.,Bankruptcy Case No. 09 B 12379. |
| Parties | In re: LAWRENCE PAPI, Chapter 7, Debtor. KAREN ALDRICH, Plaintiff, v. LAWRENCE PAPI, Defendant. |
| Court | U.S. Bankruptcy Court — Northern District of Illinois |
This matter comes before the court on the motion of debtor Lawrence Papi (the "Debtor") to dismiss a two-count adversary complaint filed by plaintiff Karen Aldrich (the "Plaintiff) to determine the dischargeability of a debt owed to her. For the reasons set forth herein, the court concludes that the Plaintiff does have standing to pursue a claim to determine dischargeability of a judgment debt for attorney's fees pursuant to Section 523(a)(5) of the Bankruptcy Code (the "Code"). Accordingly, as to Count 1 of the complaint, the Debtor's motion to dismiss is denied. As to Count II, the court finds that the Plaintiffs claim for sanctions against the Debtor arose pre-petition and is, therefore, dischargeable under Section 727(b) of the Code. Thus, the court grants the Debtor's motion to dismiss, but, the court also grants the Plaintiff leave to amend her complaint as to Count II.
The court has jurisdiction over the parties and the subject matter of this adversary proceeding pursuant to 28 U.S.C. § 1334 and Internal Operating Procedure 15(a) of the United States District Court for the Northern District of Illinois. The adversary is a core proceeding under 28 U.S.C. § 157(b)(2)(l).
According to the complaint in the matter at bar, the Debtor and his former spouse Judy Papi ("Judy'") were parties to a dissolution of marriage case in the Circuit Court of Cook County, Illinois. Judy retained the Plaintiff as her attorney to represent her in the proceedings. On July 31, 2007, the Circuit Court entered an agreed order in the case, which provided, among other things, a judgment for the Plaintiff and against the Debtor for payment of a portion of the attorney's fees that Judy owed to the Plaintiff. Specifically, paragraph K of the agreed order stated as follows:
Judgment is entered against LAWRENCE PAPI and in favor of KAREN ALDRICH, JUDY's attorney in this matter, in the amount of $12,000 for his required contribution towards JUDY's total fees and costs of $23,500 incurred and found to be reasonable and necessary in this matter regarding only child-related issues of custody, visitation and support; 9% annual statutory interest shall accrue on all unpaid balance[s] with LARRY solely responsible for the accrued interest on his allocation of fees/costs; KAREN ALDRICH is permitted to record the appropriate Memorandum(s) of Judgment to reflect the amount due from LARRY of $12,000; LARRY shall pay his share of the fees/costs in monthly installments of at least $200.00 beginning on August 1, 2007 and payable to KAREN ALDRICH each and every month thereafter until paid in full (plus accrued interest).1
Complaint, U.x. A, ¶ K.
During the period from November 2008 to February 2009, the Debtor filed various motions in the dissolution case. The Plaintiff moved to strike or dismiss each of these motions, and the Circuit Court granted relief to the Plaintiff on each occasion. In response to the Debtor's conduct in state court, the Plaintiff filed a motion for sanctions under Illinois Supreme Court Rule 137.2 That motion is currently pending in the Circuit Court.
On April 7, 2009, the Debtor filed a voluntary petition for relief under chapter 7 of the Code and listed the judgment debt to the Plaintiff on his bankruptcy schedules.3 Subsequently, on August 27, 2009, the Plaintiff filed a two-count complaint to determine the dischargeability of debt. Specifically, Count 1 of the complaint seeks a determination that the judgment debt for attorney's fees be excepted from discharge pursuant to 11 U.S.C. § 523(a)(5).4 Count II asks the court to find the Plaintiffs claim for sanctions excepted from discharge pursuant to 11 U.S.C. § 727(b).
On February 1, 2010, the Debtor filed a motion to dismiss the complaint pursuant to Federal Rule of Civil Procedure 12(b)(6). According to the Debtor, the Plaintiff lacks standing to pursue her Section 523(a)(5) claim. As to the Plaintiffs claim for sanctions, the Debtor argues that the debt is contingent or disputed and that it arose before the date of the order for chapter 7 relief. Accordingly, the Debtor contends, that debt is dischargeable.
Federal Rule of Civil Procedure 12(b)(6), made applicable to bankruptcy proceedings by Federal Rule of Bankruptcy Procedure 7012(b), permits a motion to dismiss a complaint for "failure to state a claim upon which relief can be granted[.]" Fed. R. Civ. P. 12(b)(6). The purpose of a Rule 12(b)(6) motion is to test the sufficiency of the complaint, not to decide whether the plaintiff will ultimately prevail. Gibson v. City of Chicago., 910 F.2d 1510, 1520 (7th Cir. 1990); Neiman v. Irmen (In re Irmen), 379 B.R. 299, 307 (Bankr. N.D. Ill. 2007). In determining the propriety of dismissal, a court must accept as true all of the allegations of the complaint and draw all reasonable inferences in the plaintiff's favor. Brown v. Buck, 398 F.3d 904, 908 (7th Cir. 2005).
The first issue before the court is whether a complaint tiled by an attorney asserting that attorney's fees are nondischargeable as a "domestic support obligation" under Section 523(a)(5) states a claim upon which relief can be granted. Specifically, Count I of the Plaintiffs complaint alleges that, the judgment debt against the Debtor for attorney's fees is excepted from discharge pursuant to that statutory provision.
The primary purpose of the Code is to grant a "fresh start to the honest but unfortunate debtor." Marrama v. Citizens Bank of Mass., 549 U.S. 365, 367 (2007) (internal quotations omitted). To that end, a discharge entered in a chapter 7 case discharges the debtor from all debts that arose pre-petition, except, as provided under Section 523. 11 U.S.C. § 727(b). When determining whether a debt falls within a Section 523 exception, courts usually construe the statute strictly against the creditor and liberally in favor of the debtor. In re Crosswhite, 148 F.3d 879, 881 (7th Cir. 1998); Goldberg Sees., Inc. v. Scarlata (In re Scarlata), 979 I .2d 521, 524 (7th Cir. 1992). Thus, the party seeking an exception to discharge generally bears the burden of proving by a preponderance of the evidence that the debt is nondischargeable. Crosswhite, 148 F.3d at 881 (citing Grogan v. Garner, 498 U.S. 279, 287 (1991)); In re Bero, 110 F.3d 462, 465 (7th Cir. 1997).
The policy of safeguarding the debtor is tempered, however, when the debt at issue arises from a support obligation to the debtor's spouse, former spouse, or child. Crosswhite, 148 F.3d at 881; Cantwell v. Bearden (In re Bearden), 330 B.R. 214, 222 (Bankr. N.D. Ill. 2005). Expressing Congress' determination to ensure that former spouses and children have the financial support they need to protect, their welfare, Section 523(a)(5) excepts from discharge any debt, for a "domestic support obligation." 11 U.S.C. § 523(a)(5); see also Levin v. Greco, 415 B.R. 663, 665 (N.D. Ill. 2009) (quoting Crosswhite). "Domestic support, obligation" ("DSO") is defined in Section 101(14A) of the Code as:
[A] debt that accrues before, on, or after the date of the order for relief in a case under this title, including interest that accrues on that debt as provided under applicable nonbankruptcy law notwithstanding any other provision of this title, that is—
(A) owed to or recoverable by
(i) a spouse, former spouse, or child of the debtor or such child's parent, legal guardian, or responsible relative; or
(ii) a governmental unit;
(B) in the nature of alimony, maintenance, or support (including assistance provided by a governmental unit) of such spouse, former spouse, or child of the debtor or such child's parent, without regard to whether such debt is expressly so designated;
(C) established or subject to establishment before, on, or after the date of the order for relief in a case under this title, by reason of applicable provisions of—
(i) a separation agreement, divorce decree, or property settlement agreement;
(ii) an order of a court of record; or
(iii) a determination made in accordance with applicable nonbankruptcy law by a governmental unit; and
(D) not assigned to a nongovernmental entity, unless that obligation is assigned voluntarily by the spouse, former spouse, child of the debtor, or such child's parent, legal guardian, or responsible relative for the purpose of collecting the debt.5
11 U.S.C. § 101 (14A). Thus, for the debt at issue to be considered a DSO under Section 523(a)(5), the court must determine that, the obligation: (1) is owed to or recoverable by Judy; (2) is in the nature of alimony, maintenance, or support; (3) is established by a court order; and (4) has not been assigned to a governmental entity. See id.
In this case, only the first clement is in dispute. That is, the Debtor posits that the judgment debt is neither "owed to" nor "recoverable by" the Debtor's "spouse, former spouse, or child" as required by Section 523(a)(5). Instead, because the debt is to be paid to Judy's attorney, the Debtor contends that the Plaintiff lacks standing to pursue her claim under the statute.6
Although Section 523(a)(5) applies on its face only to debts "owed to" or "recoverable by" a debtor's spouse, former spouse, child, or other enumerated parties, courts have not read the provision literally. In re Rios, 901 F.2d 71, 72 (7th Cir. 1990); see also Miller v. Gentry (In re Miller), 55 F.3d 1487, 1490 (10th Cir. 1995) (). Rather, a majority of courts have held nondischargeable under Section 523(a)(5) awards of attorney's fees incurred by a spouse, former spouse, or child in dissolution or...
To continue reading
Request your trial