In Re: Vicki Lynn Pagels

• Decision Date: 09 February 2011
• Docket Number: Case No. 10-71138-SCS,APN 10-07070-SCS
• Court: U.S. Bankruptcy Court — Eastern District of Virginia
• Parties: In re:VICKI lynn pagels, Debtor. Geoffrey m. pagels, Plaintiff, v. vicki lynn pagels, Defendant.

In re: VICKI lynn pagels, Debtor.

Geoffrey m. pagels, Plaintiff, v. vicki lynn pagels, Defendant.

Case No. 10-71138-SCS

APN 10-07070-SCS

United States Bankruptcy Court

Eastern District of Virginia

Norfolk Division

Entered on Docket: February 9, 2011

Memorandum Opinion

This matter came on for trial on January 12, 2011, upon the Complaint to Deny the Dischargeability of Debt (the "Complaint") filed by Geoffrey M. Pagels (the "Plaintiff) against the debtor, Vicki Lynn Pagels (the "Defendant"). At issue is whether a certain obligation of the Defendant arising under a separation agreement—and subsequently reduced to judgment—is in the nature of alimony, maintenance, or support, and, if so, is nondischargeable in the Defendant's underlying Chapter 13 bankruptcy proceeding. In addition to the trial, this Court simultaneously conducted hearings on related matters, specifically (i) the Plaintiffs Objection to Confirmation filed in the main bankruptcy proceeding and (ii) the Plaintiffs Motion for Summary Judgment filed in the adversary proceeding. At the conclusion of the trial, the Court took the Complaint and Motion for Summary Judgment under advisement. The Court continued the hearing on the Objection to Confirmation to April 4, 2011. This Court has jurisdiction over this proceeding pursuant to 28 U.S.C. §§ 157(b) and 1334(b). Venue is proper pursuant to 28 U.S.C. §§ 1408 and 1409(a). Upon consideration of the pleadings and the evidence presented by the parties at the trial, the Court makes the following findings of fact and conclusions of law pursuant to Rule 7052 of the Federal Rules of Bankruptcy Procedure.

I. FINDINGS OF FACT

A. Marital Stipulation and Property Settlement Agreement

After many years of marriage, the Plaintiff and the Defendant entered into a Marital Stipulation and Property Settlement Agreement dated August 26, 2003 (the "Agreement"), "for the purpose of determining the welfare and maintenance of their two children and to state all of their respective rights and obligations in the event of a divorce." Agreement at 1. The Agreement states, in relevant part, the following:

Each party having received legal counseling to their satisfaction, the following terms are agreed to voluntarily with full knowledge of the effect and enforceability of this agreement.

1. The Husband [the Plaintiff] shall pay the Wife [the Defendant] the sum of $2,400/month in spousal support beginning on October 1, 2003 and continuing until July 31, 2008. This provision is a full and final resolution of the award of spousal support in favor of the Wife [the Defendant] now or for any future time no matter the circumstances involved.

2. The Husband [the Plaintiff] waives the payment of spousal support to him by the Wife [the Defendant] now or at any future time.

....

4. Neither party shall pay child support to the other party.

....6. At the time the payment of spousal support by the Husband [the Plaintiff] concludes, the Husband [the Plaintiff] shall pay to the Wife [the Defendant] forty percent (40%) of his net military retirement after taxes to the Wife [the Defendant] on the 1st day of each month until the Wife [the Defendant] reaches the age of 62.

7. The Husband [the Plaintiff] shall have exclusive ownership and possession of the 2000 Honda Accord and shall be solely responsible for payment of all associated costs of the vehicle, including the purchase loan. The Wife [the Defendant] shall have exclusive ownership and possession of the 2002 Town & Country van and shall be solely responsible for payment of all associated costs of the vehicle, including the purchase loan. Each party shall indemnify the other party in full, including all costs of collection, for any sum that the party has to pay on the vehicle loan on the other parties' vehicle unless there is a subsequent agreement in writing by the parties modifying the payment terms on the two vehicle loans.

Id. at 1-2. Although the Plaintiff currently appears before the Court on his Complaint, Motion for Summary Judgment, and Objection to Confirmation pro se, the Plaintiff received the counsel of Stephen Merrill, Esquire, for the drafting and execution of the Agreement. The Defendant had no legal representation for the drafting or execution of the Agreement; however, the Defendant currently appears before the Court in her bankruptcy case and on the Plaintiffs Complaint with counsel.

B. Final Decree of Divorce

The parties obtained a divorce over two years after the execution of the Agreement. Judge Morrison of the Circuit Court of the City of Norfolk entered a Final Decree of Divorce on December 15, 2005 (the "Divorce Decree"). The Divorce Decree affirms, ratifies, and incorporates the Agreement "as modified by the Virginia Beach Juvenile and Domestic Relations District Court Order entered on September 14, 2004" (the "Domestic Relations Order"). Divorce Decree at 3. Neither the Plaintiff nor the Defendant has offered a copy of the Domestic Relations Order into evidence. This Court assumes that any modification to the Agreement by the Domestic Relations Order is immaterial.

C. State Court Litigation

Because neither party has apparently performed his or her obligations under the Agreement perfectly, the parties regrettably have found themselves in state court on more than one occasion. Judge Hall of the Circuit Court for the City of Norfolk (the "Norfolk Circuit Court") has summarized the facts concerning the state court proceedings in a Letter Opinion dated February 3, 2010 (the "Letter Opinion"):

According to [the Plaintiffs] testimony as well as the factual allegations that appear in a Motion for Judgment that he filed against [the Defendant] in the Chesapeake Circuit Court..., in early 2004 he and [the Defendant] orally agreed to modify [the Agreement] in a number of respects. He testified that the original spousal support payment had been intended to cover the payment of certain specific sums including the mortgage on the marital residence, the second mortgage for a pool, and expense money. [The Defendant] was to remain in the house with the two sons until the younger one graduated from high school, at which time the house would be sold. The total sums that he agreed to pay amounted to $2,400, which was reflected in paragraph 1 of [the Agreement]: "The Husband shall pay the Wife the sum of $2,400/month in spousal support beginning on October 1, 2003 and continuing until July 31, 2008." July 31, 2008, the termination of the agreed-upon support, coincided with the expected graduation date of the younger son and the date on which the house was to be sold.

Allegedly pursuant to the 2004 oral agreement, [the Plaintiff] took custody of the sons; [the Defendant] gave or loaned the van to him; and she sold the marital residence which relieved her of the payment obligation for certain of the sums that [the Plaintiff] viewed as components of his $2,400 support amount. [The Agreement], however, was not modified by written agreement as he claims he expected it would be. [The Plaintiff] thereafter sought from the Court a modification in his support obligation. The Commissioner in Chancery for his divorce recommended denial of that request, to which report [the Plaintiff]excepted; and this Court confirmed the Commissioner's report, finding that [the Plaintiff] had not met his burden of proving an agreed reduction in spousal support. [The Plaintiffs] attempts to appeal that adverse finding to the Court of Appeals and to the Supreme Court of Virginia were unsuccessful.

As a result of this experience where a Court refused to acknowledge or enforce [the Plaintiffs] claimed oral agreement and instead adhered to the terms of [the Agreement], [the Plaintiff] apparently determined to seek an equally strict interpretation of [the Agreement's] indemnification obligation against [the Defendant]. His efforts to enforce his right to collect van payments from [the Defendant] commenced in 2005.

Letter Opinion at 3-4.

The Norfolk Circuit Court indeed applied an equally strict interpretation of the Agreement's indemnification obligation against the Defendant, and, after finding that the Defendant neither made payments on the vehicle loan nor indemnified the Plaintiff for same, awarded judgment in favor of the Plaintiff in the amount of $31,061.36. The Letter Opinion does not indicate whether this amount awarded is necessary or intended for the Plaintiff's maintenance or support. The Norfolk Circuit Court also awarded judgment in favor of the Defendant in the amount of $9,035.60 on the Defendant's counterclaim for recovery of payments owed pursuant to paragraph six (6) of the Agreement. The judgments offset, leaving a $21,025.76 judgment payable to the Plaintiff (the "Judgment"). Judge Hall entered the Judgment in accordance with the Letter Opinion by order entered in the Norfolk Circuit Court on February 9, 2010.

D. The Defendant's Chapter 13 Bankruptcy Proceedings

Approximately one month after entry of the Judgment, on March 13, 2010, the Defendant filed for relief under Chapter 13 of the United States Bankruptcy Code in this Court. The Defendant filed her schedules on April 12, 2010. Schedule E (which denotes unsecured debtsentitled to priority under 11 U.S.C. § 507) lists the Plaintiffs claim in the amount of $31,061.36. Despite listing the debt on Schedule E, the Defendant noted in the right-hand column, under "Amount Not Entitled to Priority, if Any," that the entirety of the debt is not entitled to priority. The Defendant also filed her Chapter 13 Plan of Reorganization on April 12, 2010 (the "Chapter 13 Plan"). Section 11 of the Chapter 13 Plan states that the Judgment "as listed on Schedule E is alleged to be a debt in the nature of 11 USC [§] 523(a)(15) and is dischargeable in this Chapter 13 case." Again, although included on her Schedule E, the Chapter 13 Plan treats the Plaintiffs claim as a nonpriority unsecured claim on which the Plaintiff should expect to receive a fourteen percent (14%) distribu...