In re Roland

• Citation: 294 B.R. 244
• Decision Date: 24 June 2003
• Docket Number: Bankruptcy No. 02-13030(SMB).,Adversary No. 02-3125(SMB).
• Parties: In re Leo Patrick ROLAND, Debtor. Marjorie Thompson, Plaintiff, v. Leo Patrick Roland, Defendant.
• Court: United States Bankruptcy Courts. Second Circuit. U.S. Bankruptcy Court — Southern District of New York

294 B.R. 244

In re Leo Patrick ROLAND, Debtor Marjorie Thompson, Plaintiff, v. Leo Patrick Roland, Defendant.

Bankruptcy No. 02-13030(SMB).

Adversary No. 02-3125(SMB).

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

June 24, 2003.

Carlos J. Cuevas, Yonkers, NY, for Plaintiff.

Goldberg, Scudieri, Lindenberg & Block, P.C., Ivy Alexander, of Counsel, New York City, for Defendant.

POST-TRIAL DECISION AND ORDER

STUART M. BERNSTEIN, Chief Judge.

The plaintiff brought this adversary proceeding, inter alia, for a determination that the debtor's obligation to pay attorney's fees was non-dischargeable under 11 U.S.C. § 523(a)(5) or (a)(15). The Court conducted a one-day trial at which both parties testified, and several exhibits were received in evidence. The record adduced at the trial compels the conclusion that the plaintiff failed to prove a right to attorney's fees under applicable non-bankruptcy law. Accordingly, judgment will be entered dismissing the adversary proceeding.

BACKGROUND

The plaintiff and the debtor were formerly married,¹ and have a son, Sébastien. In January 2001, and while still married, the parties contracted to buy a house located at 340 Bellevue Avenue in Yonkers (the "Property"). The defendant borrowed $25,000.00 from his pension to make the down payment. (See Trial Transcript, dated May 6, 2003 ("Tr."), at 41.) The parties separated three months later, (Tr. 41)², and the debtor informed the plaintiff that he did not want to proceed with the purchase. (Id.) However, when the debtor advised the broker to call off the purchase, the broker warned him that he would lose the down payment if he backed out. (Id.)

A. The Parties' Agreement

To avoid losing the down payment, and to provide, inter alia, for Sébastien's custody and support, the parties entered into a three page agreement drafted by the plaintiff, an attorney, on July 9, 2001 (the "Agreement")(Trial Exhibit ("TX") 9.) The Agreement contained the following material terms:

1. The parties would purchase the Property as tenants in common, but live apart.

2. The plaintiff would live with Sébastien at the Property, and have sole financial responsibility for the Property.

3. The plaintiff acknowledged an obligation to the debtor in the net amount of $22,950.00, the amount of the deposit less certain offsets.

4. The debtor agreed to pay monthly child support in the sum of $600.00, but the obligation would be deducted from the amount owed by the plaintiff to the debtor. In essence, the plaintiff would fund the debtor's child support payments, at least until the debtor had exhausted his credit. Once the credit was exhausted, the debtor would transfer his interest in the Property to the plaintiff upon her request.

The Agreement addressed the sale of the Property in only one place. The debtor promised not to "compel, coerce or exert any pressure upon [the plaintiff] to sell the premises against her wishes."

Finally, the Agreement contained reciprocal provisions relating to indemnification which are critical to the parties' dispute:

Except as otherwise expressly set forth herein, the HUSBAND represents and agrees that he has not heretofore, nor will he hereafter, incur or contract any debt, charge, obligation or liability whatsoever for which the WIFE is or may become liable in relation to this transaction. The HUSBAND agrees to indemnify and hold the WIFE harmless of all loss, expenses (including reasonable attorneys' fees) and damages in connection with or arising out of a breach by the HUSBAND of his foregoing representation and agreement.

Except as otherwise expressly set forth herein, the WIFE represents and agrees that she has not heretofore, nor will she hereafter, incur or contract any debt, charge, obligation or liability whatsoever for which the HUSBAND is or may become liable in relation to this transaction. The WIFE agrees to indemnify and hold the HUSBAND harmless of all loss, expenses (including reasonable attorneys' fees) and damages in connection with or arising out of a breach by the WIFE of her foregoing representation and agreement.³

The parties lived under the Agreement for approximately one year. During this period, the plaintiff deducted the debtor's monthly child support obligation from the amounts she owed to the debtor. (TX 4, Declaration of Marjorie Thompson, Esq., dated June 23, 2002 ("Thompson Decl."), at ¶ 10.) In May 2002, the plaintiff located a buyer for the Property at a selling price of $398,000.00. (See id. ¶ 2 & Ex. B.) She transmitted the Contract of Sale to the debtor and asked him to execute it. (Tr. 42.) He refused, arguing that he was coerced into signing the Agreement, and did not agree with the proposed split of the sales proceeds. (Id. 43-44.)

B. The Pre-Petition Litigation

The plaintiff commenced an action against the debtor in state supreme court, and simultaneously moved by order to show cause to compel the debtor to cooperate in the sale of the Property. (TX 4, Thompson Decl. ¶¶ 11-12.) The plaintiff based her right to relief on the Agreement, arguing that the debtor had breached it by refusing to cooperate with the sale. (See id. ¶ 11.)

The debtor appeared pro se on the June 13 return date, and requested an adjournment which the court denied. The court also overruled his objection to the sale, ordered the Property to be sold, and authorized the plaintiff to sign the debtor's name to the contract of sale.⁴ The state court's decision was based on its interpretation of the Agreement as "an agreement that this property be sold," (TX 4, Thompson Decl., Ex. E, at 9), and, "in essence," the state court granted "summary judgment to [the plaintiff] that the house be sold in accordance with the agreement." (Id., at 12-13.) On July 10, 2002, the state court signed an order consistent with its ruling at the June 13, 2002 hearing. (TX 6, Declaration of Marjorie J. Thompson Esq. in Support of Motion to Modify Automatic Stay, dated Sept. 23, 2002, Ex. D.)

C. The Bankruptcy Proceedings

The debtor filed this chapter 7 case on June 20, 2002, after the hearing but before the state court had signed the order.⁵ The plaintiff thereafter commenced this non-dischargeability proceeding on or about September 23, 2002. Although the complaint sought various forms of relief, the only remaining issue tried to the Court involved the non-dischargeability of the legal fees incurred in enforcing the Agreement under either 11 U.S.C. § 523(a)(5) or § 523(a)(15)⁶. The undisputed documentary evidence showed that the plaintiff incurred $2,545.00 in legal fees and expenses in connection with the state court proceedings, and an additional $9,450.00, through December 18, 2002, in connection with the bankruptcy case. (TX 8.) She further testified that her fees as of that time of the trial totaled approximately $14,000.00. (Tr. 20.)

DISCUSSION⁷

Section 523(a) excepts certain debts from the effect of the general discharge granted to an individual debtor under 11 U.S.C. § 727. A "debt" is a liability on a claim, 11 U.S.C. § 101(12), and a "claim" is a right to payment, 11 U.S.C. § 101(5)(A), which the Supreme Court has defined as "nothing more nor less than an enforceable obligation." Cohen v. de la Cruz, 523 U.S. 213, 218, 118 S.Ct. 1212, 140 L.Ed.2d 341 (1998)(quoting Pennsylvania Dep't of Public Welfare v. Davenport, 495 U.S. 552, 559, 110 S.Ct. 2126, 109 L.Ed.2d 588 (1990)).

Accordingly, every dischargeability proceeding involves two separate inquiries. First, does the creditor hold an enforceable obligation under non-bankruptcy law. Second, is the debt non-dischargeable under bankruptcy law, specifically § 523(a). Resolution Trust Corp. v. McKendry (In re McKendry), 40 F.3d 331, 337 (10th Cir.1994); Richardson v. Hidy Honda, Inc. (In re Richardson), 221 B.R. 956, 961 (D.Wyo.1998); Edwards v. Sieger (In re Sieger), 200 B.R. 636, 639 (Bankr.N.D.Ind.1996); see In re Moran, 152 B.R. 493, 495 (Bankr.S.D.Ohio 1993); see generally Alan M. Ahart & Stacy M. Hopkins, The Role of Nonbankruptcy Law in Dischargeability Proceedings: Unenforceable Obligations Must Not Survive Discharge While Enforceable Obligations May Be Excepted from Discharge, 7 J. Bankr.L. & Prac. 161, 166-67 (1998). In the absence of an enforceable obligation, there is no "debt" that can be non-dischargeable. In re Mills, 841 F.2d 902, 904-05 (9th Cir.1988)(dismissing non-dischargeability proceeding based on determination that state law anti-deficiency statute barred creditor's claim for waste); Quarre v. Saylor (In re Saylor), 178 B.R. 209, 214-15 (9th Cir. BAP 1995)(dismissing non-dischargeability proceeding based on creditor's failure to show that the debtor's fraudulent transfer gave rise to a claim for damages under state law); Steed v. Shapiro (In re Shapiro), 180 B.R. 37, 42 (Bankr.E.D.N.Y.1995)(dismissing non-dischargeability proceeding based on determination that creditor's state law claim, grounded in sexual misconduct, was time-barred).

Here, the plaintiff contends that the debtor breached the Agreement by refusing to sell the Property, and his breach triggered her right to recover attorney's fees under the indemnification provision quoted above. (Tr. 74-75.) As noted, the state court construed the Agreement as "an agreement that this property be sold," (TX 4, Thompson Decl., Ex. E, at 9), and "in essence," granted "summary judgment to [the plaintiff] that the house be sold in accordance with the agreement." (Id., at 12-13.) While the debtor may legitimately quarrel with the state court's interpretation of the Agreement, he is foreclosed under the Rooker-Feldman doctrine from arguing in this Court that his refusal to consent to the sale did not constitute a breach of the Agreement.⁸ Any review of the state court's decision must be sought in the state appellate courts.

This conclusion also seems to cut off any challenge to the plaintiff's contractual right to recover her attorney's fee under the Agreement. Although the state court did not...