In re Rogowski

• Decision Date: 21 December 2011
• Docket Number: No. 10–72473–ast.,10–72473–ast.
• Citation: 462 B.R. 435
• Parties: In re Marek ROGOWSKI, Debtor.
• Court: U.S. Bankruptcy Court — Eastern District of New York

462 B.R. 435

In re Marek ROGOWSKI, Debtor.

No. 10–72473–ast.

United States Bankruptcy Court, E.D. New York.

Dec. 21, 2011.

Elena M. Kreitzman, Esq., Spina & Kreitzman, Hauppauge, NY, for Debtor.

Jason Leibowitz, Esq., Law Office of Craig D. Robins, Woodbury, NY, for Schonfeld & Goldring, LLP.

MEMORANDUM OPINION OVERRULING DEBTOR'S OBJECTION TO DEBTOR'S FORMER SPOUSE'S MATRIMONIAL ATTORNEY'S FEE CLAIM AS A DOMESTIC SUPPORT OBLIGATION

ALAN S. TRUST, Bankruptcy Judge.

The matter before the Court involves the priority status and nondischargeability in a chapter 13 case of a non-debtor former spouse's matrimonial attorney's fees incurred in a prepetition divorce action. Pending before the Court is an objection (“Objection”) filed by Debtor, Marek Rogowski (“Debtor”), to the proof of claim (the “Claim” [Claim # 5] ) filed by his former spouse's matrimonial attorneys, Schonfeld & Goldring, LLP (“Schonfeld”). [dkt item 21] The Claim is for the amount of $32,950.00, representing matrimonial attorney's fees incurred by Debtor's former spouse, Christine Ella Rogowski (“CER”), which Debtor was ordered to pay in a pre-petition judgment of divorce (the “Divorce Judgment”). [dkt item 21, Exhibit B] Schonfeld asserts priority status for the Claim as a domestic support obligation (“DSO”) under Section 507(a)(1)(A) or (a)(1)(B) of the Bankruptcy Code ¹. Debtor does not object to the amount of the Claim, but objects to the asserted priority status.

Debtor argues that the Claim is not entitled to priority status on the grounds that “the legal fees are not owed to or recoverable by the Debtor's former spouse or child; such fees were directly awarded to counsel for his former spouse, and are thus owed to counsel,” and that “the legal fees awarded were not in the nature of alimony, maintenance or child support but were part of the state court's equitable distribution of the marital assets.” [dkt item 21, ¶¶ 6–7] In response, Schonfeld states CER's matrimonial attorney's fees constitutes a priority debt “because it qualifies as a domestic support obligation under the circumstances pursuant to 11 U.S.C. §§ 101(14[A] ) and 507(a)(1).” [dkt item 25] Schonfeld states the question presented by the Claim and the Objection as follows:

The issue before the court is whether a claim for the pre-petition attorney's fees of a non-filing former spouse that arose out of the Debtor's matrimonial action may qualify as a nondischargeable domestic support obligation entitled to priority treatment pursuant to 11 U.S.C. §§ 101(14[A] ) and 507(a) in a Chapter 13 Bankruptcy case.

[dkt item 25, ¶ 4]

For the reasons stated herein, this Court concludes that Schonfeld's Claim for matrimonial attorney's fees constitutes a DSO under § 101(14A), and is therefore entitled to administrative priority status under § 507(a)(1) in this chapter 13 case, and is a nondischargeable debt under §§ 523(a)(5) and 1328(a)(2).

Jurisdiction

This Court has jurisdiction over this core proceeding pursuant to 28 U.S.C. §§ 1334(b) and 157(b)(2)(A), (B), (I) and (O), and the Standing Order of Reference in effect in the Eastern District of New York dated August 28, 1986. This decision constitutes the Court's findings of facts and conclusions of law to the extent Rule 7052 of the Federal Rules of Bankruptcy Procedure so requires. Fed. R. Bankr.P. 7052.

Background

The facts of the marriage of Debtor and CER and the resulting dissolution action are established by the Decision After Trial [dkt item 25, Exhibit B] of Justice Arthur M. Daimond of the Supreme Court of Nassau County, New York, who presided over the divorce. By way of summary, Debtor and CER were married on January 9, 1993. CER filed for divorce in Nassau County Supreme Court in 2008. Grounds for the divorce were resolved by agreement, leaving for trial the economic issues of child support, maintenance, equitable distribution, and allocation of various debts.

A trial was held in June 2009. At the time of the trial, CER was forty-two years of age and Debtor was thirty-eight years old; they have three children, all boys, who in June 2009 ranged in age from five to twelve years old. At the time of the marriage, CER worked in the field of fashion design, but, by agreement, left her career to become a homemaker and full-time parent; by June 2009, CER had been completely out of the workforce for over twelve years. As of June 2009, Debtor was a certified public accountant, employed by Wachovia Securities with the title of Product Equities Manager. Prior to the banking and financial crisis of the fall of 2008, Debtor was earning approximately $350,000 per year, at least half of which was typically paid via a year-end bonus.

Prior to their divorce, the Rogowski family lived a very comfortable, debt-free, suburban lifestyle. Debtor earned a significant income; the family took vacations; the children participated in countless extracurricular activities; they remodeled their home several times; they purchased a vacation/retirement property in Florida. However, this apparent tranquility was disrupted in the fall of 2007, when CER discovered an unauthorized charge to one of her credit cards; that discovery ultimately lead to the admission by Debtor that he had incurred substantial debts and had essentially spent all of the couple's marital estate covering those debts. The family's ability to recover economically from these debts was severely impacted in the fall of 2008, as a result of the financial and banking crisis, when Debtor's annual income of $350,000 was reduced by approximately one-half.

Justice Diamond issued the Divorce Judgment dated February 23, 2010, which was entered on March 3, 2010. The Divorce Judgment, inter alia, directs Debtor to pay CER's credit card debt that Debtor incurred in her name, to make payments on the second mortgage on the family residence, to provide for their children's medical expenses, to pay child support and maintenance to CER, and to pay CER's matrimonial attorney's fees.

On April 8, 2010, Debtor filed a petition for relief under Chapter 13 of the Bankruptcy Code (“Petition”). [dkt item 1] On his Schedule F, Debtor lists a liability to Schonfeld in the amount of $32,950 as a general unsecured claim, with the description: “Claim incurred: 2/23/10; Ex-spouse's attorneys fees as per judgment of divorce.” Also on April 8, 2010, Debtor filed a Chapter 13 plan. [dkt item 5] The plan proposes a pro-rata distribution to unsecured creditors of not less than ten percent, based on a monthly plan payment of $1,247 to be paid to the Chapter 13 Trustee over a period of sixty months. On June 9, 2010, Schonfeld filed the Claim, asserting priority status. Due in part to the issues arising under the Claim, and due in part to a pending adversary proceeding ² filed by CER against Debtor (the “Adversary”) seeking a determination of nondischargeability of certain other debts arising under the Judgment, this Court ordered CER and Debtor to mediation of the issues in this main bankruptcy case as well as in the Adversary. [dkt item 36] These matters were not resolved through mediation. The hearing to consider confirmation of Debtor's plan is now set for March 8, 2012.

Legal Analysis

Administrative priority status and nondischargeable status of domestic support obligations in chapter 7 and chapter 13 cases

To determine whether the Claim is nondischargeable and entitled to priority status, the Court must analyze §§ 101, 507(a), 523, 727, and 1328, and the changes to those sections made or impacted by the substantial amendments to the Bankruptcy Code enacted by Congress under the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (“BAPCPA”). BAPCPA introduced significant statutory changes regarding the status of debts and obligations arising from the marital relationship, and applied to cases commenced after October 17, 2005. These amendments included adding a definition of a DSO in § 101(14A) ³, granting a first priority administrative status to DSOs under § 507(a)(1) ⁴, and modifying § 523(a) to “significantly limit” a debtor's ability to discharge debts related to a matrimonial action. In re Schenkein, 2010 WL 3219464, at *4 (Bankr.S.D.N.Y. Aug. 9, 2010).⁵ Section 523(a)(5) ⁶ creates an exception from discharge for any debt “for a domestic support obligation,” and § 523(a)(15) ⁷ creates an exception from discharge for any debt to a spouse, former spouse, or child of the debtor that is “incurred in the course of a divorce or separation or in connection with a separation agreement, divorce decree or other order of a court of record” and which is in the nature of a DSO but does not fall within the definition of a DSO.⁸ Finally, § 1328(a)(2) provides that a chapter 13 discharge does not discharge (among other things) any debt under § 523(a)(5), which is a debt for a “domestic support obligation” as defined under § 101(14A). There is a tension between § 523(a) and § 1328(a) as to whether debts that fall under § 523(a)(15) can be discharged in a chapter 13 case. However, that determination is not impactive for this case.⁹

Post–BAPCPA case law interpreting DSO status for matrimonial attorney's fees

There is no post-BAPCPA Second Circuit case law applying § 101(14A) to determine the priority status of matrimonial attorney's fees incurred by the non-filing former spouse and/or determining the nondischargeability thereof in a chapter 13 case, but there are several decisions in chapter 7 cases. In In re Tarone, 434 B.R. 41 (Bankr.E.D.N.Y.2010), a post-BAPCPA case, Chief Judge Craig of this Court held that a chapter 7 debtor's obligations for maintenance and attorney's fees awarded in favor of his non-debtor ex-wife in a marital dissolution proceeding were nondischargeable under §§ 523(a)(5) and 523(a)(15). Judge Craig noted in Tarone that prior to BAPCPA, the language of § 523(a)(15) permitted the discharge in a chapter 7 or chapter 13 case of obligations that were not characterized as support...