In re Scholl

• Decision Date: 04 June 1999
• Docket Number: Adversary No. 98-0060.,Bankruptcy No. 97-32805DWS
• Citation: 234 BR 636
• Parties: In re Leonard W. SCHOLL, Debtor. Mary H. Scholl, Plaintiff, v. Leonard W. Scholl, Defendant.
• Court: U.S. Bankruptcy Court — Eastern District of Pennsylvania

234 B.R. 636 (1999)

In re Leonard W. SCHOLL, Debtor Mary H. Scholl, Plaintiff, v. Leonard W. Scholl, Defendant.

Bankruptcy No. 97-32805DWS, Adversary No. 98-0060.

United States Bankruptcy Court, E.D. Pennsylvania, Philadelphia Division.

June 4, 1999.

Mark Blank, Jr., Paoli, PA, for plaintiff.

Michael W. Gallagher, King of Prussia, PA, for debtor.

Arthur P. Liebersohn, Philadelphia, PA, Chapter 7 Trustee.

Dave P. Adams, Office of the U.S. Trustee, Philadelphia, PA, United States Trustee.

OPINION

DIANE WEISS SIGMUND, Bankruptcy Judge.

Plaintiff Mary Scholl has filed an adversary complaint against her estranged husband Leonard Scholl ("Debtor") seeking to protect any equitable distribution award she may obtain in the future from discharge in his Chapter 7 case. She advances two theories to support this result, one of which is the subject of the Summary Judgment Motion (the "Motion") at issue here. In short, she seeks a ruling that she holds a vested, inchoate right to the equitable distribution of marital property and not a claim subject to discharge in Debtor's Chapter 7 case. For the reasons stated below, I agree.¹

BACKGROUND

The parties were married on November 27, 1954. After separating on November 15, 1993, Plaintiff commenced divorce proceedings in the Court of Common Pleas of Chester County ("State Court") on December 23, 1993. In the divorce action, Plaintiff requested equitable distribution of marital property, alimony pendente lite, counsel fees, and costs. A special divorce master was appointed to take testimony and render a report and recommendation concerning equitable distribution and alimony. The proceedings in the divorce action were stayed by the Defendant's bankruptcy petition, filed on October 20, 1997. Complaint, ¶¶ 2-5; Answer, ¶¶ 2-5.

In his schedules, the Debtor identified the Plaintiff as an unsecured creditor with "possible debt arising from marriage, not including possible or actual support or alimony, in the amount of $135,000." Complaint, ¶ 7; Answer, ¶ 7. The marital property at issue consists of the marital home, the Debtor's pension and his IRA account.² Relief from the automatic stay was granted on March 24, 1998 to permit the divorce and equitable distribution proceedings to continue in the State Court. Doc. No. 25.³ Apart from a certificate of readiness for trial filed on February 11, 1999, the State Court docket indicates that no progress has been made in the divorce action since the automatic stay was lifted, a fact acknowledged with some frustration by the parties' counsel. Case Summary Report for Scholl v. Scholl, Court of Common Pleas, Chester Co. Docket No. 93-11699 dated February 25, 1999 (Exhibit to Plaintiff's Motion).

Plaintiff contends that her rights to the marital property subject to future distribution by the State Court are vested property rights not subject to discharge in the Defendant's bankruptcy. Citing to In re Wilson, 85 B.R. 722 (Bankr.E.D.Pa.1988) and In re Bennett, 175 B.R. 181 (Bankr. E.D.Pa.1994), Plaintiff argues that 1) the filing of the divorce action gave her a vested right to seek equitable distribution; 2) by virtue of the divorce action, the State Court holds the marital property in custodia legis; 3) the State Court should be permitted to render an ultimate distribution of this marital property; and 4) that plaintiff has been incorrectly listed as an unsecured creditor in the Defendant's schedules. Pl.Mem. at 2-4. In sum, Plaintiff's position is that the outcome of the equitable distribution proceeding is unaffected by the Debtor's bankruptcy.

Debtor, on the other hand, relies upon the definitions of "debt" and "claim" set forth in 11 U.S.C. § 101(12) and (5) as indicative that the breadth of a bankruptcy claim encompasses Plaintiff's rights in the marital property for which Debtor seeks to be discharged. Debtor compares the equitable distribution award to a tort claim, that is nonetheless a claim despite its status as contingent, disputed, and unliquidated. Defendant asserts that Plaintiff's claim should be discharged under § 523(a)(15).

DISCUSSION

In In re Bennett, 175 B.R. 181 (Bankr.E.D.Pa.1994), I confronted the issue of whether a wife had a claim arising from her marital interest in her estranged husband/debtor's pension that could be discharged in his bankruptcy case. Mrs. Bennett initiated divorce proceedings in 1989. The state court approved the grounds for divorce and ruled that the action was ready for equitable distribution. Before an equitable distribution order could be entered, however, Mr. Bennett filed a Chapter 7 petition. Mrs. Bennett filed an adversary complaint to preserve her right to receive a portion of the debtor's pension, either as a post-petition debt or as alimony nondischargeable under § 523(a)(5). Mr. Bennett claimed the pension as an exempt asset under § 522(d)(10).

Easily concluding that under Pennsylvania law the pension was marital property, I held that Mrs. Bennett's request for equitable distribution of the pension did not give rise to a claim in her husband's bankruptcy case, but instead gave Mrs. Bennett "the right to secure a court order determining the extent of her interest in the Pension Plan which when secured will under applicable law relating to pension plans be a basis to require the pension plan administrators of the Pension Plan to pay her directly." Id. at 183. Thus, her right did not qualify under the Code definition of claim. Noting that "the state law right to seek equitable distribution `vests' at the time the divorce proceeding is commenced and equitable distribution is requested," In re Wilson, 85 B.R. 722, 726 (Bankr.E.D.Pa.1988), I then considered whether Mrs. Bennett's property interest could be cut off by Debtor's subsequent bankruptcy filing,⁴ and concluded that it could not since upon the initiation of a divorce proceeding under Pennsylvania law, marital property is placed under the divorce court's jurisdiction to be held in custodia legis until the conclusion of the divorce proceeding, Bennett, 175 B.R. at 185.⁵

Debtor argues, without any elaboration, that Bennett should be limited to its facts.⁶ I assume that he means that the holding should be narrowly construed to apply only to a nondebtor's rights in a debtor's pension plan. Making his argument for him, support for that proposition could be found in that portion of the Opinion wherein I discuss the particular attributes of a pension plan which require payment from a third party. I state the following:

What Plaintiff has is the right to secure a court order determining the extent of her interest in the Pension Plan which when secured will under applicable law relating to pension plans be a basis to require the pension plan administrators of the Pension Plan to pay her directly.

Id. at 182. Agreeing with the Court in Wisniewski v. Piasecki (In re Piasecki), 171 B.R. 49 (Bankr.N.D.Ohio 1994), I found no liability on a claim where the payment obligation was held by a third party, the plan administrators, as opposed to the debtor. The assets that the Scholls' marital estate hold are a pension, an IRA and a residence.⁷ It is possible that the ultimate equitable distribution order could require Debtor to transfer some portion of his IRA or the value of the marital residence to Mrs. Bennett on account of her marital interests. Thus, if Bennett were limited to rights in assets that would be collected from third parties, it might not be applicable here. However, I find the principles articulated in Bennett to be equally applicable where the assets could upon ultimate equitable distribution involve payment from the debtor spouse.⁸

The rationale underpinning my ruling in Bennett was that the divorce filing and the right to equitable distribution that vested thereupon did not give rise to a "debt" owed by the debtor spouse or a "claim" owned by the nondebtor spouse to be resolved in the debtor spouse's later-filed bankruptcy, but rather gave rise to a property interest in marital property to be equitably distributed in the divorce proceeding. Id. at 183. The Code defines a "debt" as "liability on a claim" (11 U.S.C. § 101(12)), and a "claim" as

(A) right to payment, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured or unsecured; or

(B) right to an equitable remedy for breach of performance if such breach gives rise to a right to payment, whether or not such right to an equitable remedy is reduced to judgment, fixed, contingent, matured, unmatured, disputed, undisputed, secured, or unsecured;

11 U.S.C. § 101(5). The initial focus of any inquiry under these provisions is upon the concept of a "right to payment." In Cohen v. De La Cruz, 523 U.S. 213, 118 S.Ct. 1212, 140 L.Ed.2d 341 (1998), the Supreme Court recently discussed these definitions:

A "debt" is defined in the Code as "liability on a claim," § 101(12), a "claim" is defined in turn as a "right to payment," § 101(5)(A), and a "right to payment," we have said, "is nothing more nor less than an enforceable obligation." Pennsylvania Dept. of Public Welfare v. Davenport, 495 U.S. 552, 559 110 S.Ct. 2126, 2131, 109 L.Ed.2d 588 (1990). Those definitions "reflect Congress\' broad ... view of the class of obligations that qualify as a `claim\' giving rise to a `debt....\'"

Cohen, 523 U.S. 213, 118 S.Ct. at 1216. Thus, while the bankruptcy concept of a "claim" may be broad, it is not so broad as to encompass rights that do not constitute "enforceable obligations" If the mere filing of a divorce action (coupled with an equitable distribution request) does not give rise to an "enforceable obligation" conferring thereby a "right to payment" against the other spouse, then a spouse's later filing of a bankruptcy petition does not give rise to a "claim" owned by the nondebtor spouse and potentially dischargeable in the debtor spouse's bankruptcy case.

While the...