In re Virden, 01-19004-CJK.

• Decision Date: 20 June 2002
• Docket Number: No. 01-19004-CJK.,01-19004-CJK.
• Citation: 279 B.R. 401
• Parties: In re David A. VIRDEN, Debtor.
• Court: U.S. Bankruptcy Court — District of Massachusetts

279 B.R. 401

In re David A. VIRDEN, Debtor.

No. 01-19004-CJK.

United States Bankruptcy Court, D. Massachusetts.

June 20, 2002.

COPYRIGHT MATERIAL OMITTED

William Harris, Esq., Beverly, MA, for Debtor.

Carl D'Angio, Esq., Waltham, MA, for Guy Rufo.

Doreen Solomon, Chapter 13 Trustee.

MEMORANDUM OF DECISION ON MOTION FOR RELIEF FROM STAY OR, IN THE ALTERNATIVE, TO DISMISS THE CASE WITH PREJUDICE AND DETERMINE THE DEBT NONDISCHARGEABLE

CAROL J. KENNER, Bankruptcy Judge.

The basis for this motion is highly unusual: the Chapter 13 Debtor, who was the former employer of the movant, Guy Rufo, withheld more than $16,000 from Mr. Rufo's wages. In blatant disregard of a Probate Court order, the Debtor, on 188 occasions, failed to remit almost all of those funds to the Department of Revenue.

The Movant seeks relief on alternate grounds. First, seeking relief from the automatic stay, the Movant argues that his debt is for child support, and his efforts to collect are not stayed by operation of 11 U.S.C. § 362.¹ Second, the Movant seeks a declaration that his debt is nondischargeable pursuant to 11 U.S.C. § 523(a)(4), (5), or (7), objects to the Debtor's proposed Chapter 13 plan on the basis that he is the only creditor, and asks for dismissal of the Debtor's bankruptcy case with prejudice. The Debtor filed a timely opposition and the Court conducted a hearing, taking the matter under advisement.

Background and Facts

The Debtor, David Virden, filed this Chapter 13 bankruptcy case on November 29, 2001. His Schedules disclose that the Debtor owns no real property, indeed no property of any kind beyond the small amounts of personal property that he exempts pursuant to 11 U.S.C. § 522(d). The Debtor lists only two creditors, both holding unsecured nonpriority claims: $340 owed to B & C Realty, and $54,039.64 owed to the present Movant, Guy Rufo, representing a judgment of $25,000 plus attorneys fees of $29,039.64. On Schedule I, the Debtor describes himself as a construction manager earning $7,132.67 per month, also lists his spouse, a high school teacher, earning $3,982.51, and lists his eighteen-year-old daughter as his only dependent. The combined monthly income after taxes is $7,724.90. Schedule J reports combined monthly expenses of $7,444.00. Selected monthly expenses included in this total are listed as: mortgage or rent $747, food $830, child's college expenses $2,000, "attached itemized expenses" (actually not attached, nor itemized) $653. The Debtor discloses excess monthly income of $280.90, and proposes to pay $245 per month into his Chapter 13 plan. On the Statement of Financial Affairs the Debtor discloses his income from employment for the last three years as $65,000, $68,000 and $60,000. He also asserts business income of $4,000 per annum, that he labels "management fee for 250 Beacham Street Limited Partnership". The Debtor lists an ownership stake in this limited partnership on Schedule B, valued at $5,000 and claimed as fully exempt, and also states that he is the general partner of this business. Elsewhere in the Statement of Financial Affairs, the Debtor says that he holds or controls a commercial warehouse valued at $2.5million on behalf of 250 Beacham Street Limited Partnership. The Debtor's Chapter 13 Plan proposes payments of $245 for 36 months, the minimum permissible period under 11 U.S.C. § 1325. Thus, plan payments will total $8,819.97. The Court observes that the Debtor has designated the entire amount of his own attorney's fee for this case, $2,500, to be paid through the Plan, thus diluting the amount available for his creditors. The upshot is that unsecured creditors, in other words Mr. Rufo, will receive only 10 cents on the dollar.

The Debtor's filing of this Chapter 13 bankruptcy case on November 29, 2001, was precipitated by a state court judgment entered against him in favor of Mr. Rufo. The circumstances giving rise to that judgment are most pertinent to this dispute and are eloquently described by Probate & Family Court Judge McGovern in the decision she issued on June 12, 2001. The precis that follows is condensed from Judge McGovern's decision.

Guy Rufo is a divorced father of three children. Pursuant to a divorce judgment issued in 1992, Rufo was ordered to pay child support to his ex-wife, and the payments were to be collected by means of an income assignment to the Massachusetts Department of Revenue. In other words, Rufo's employer was to withhold the child support payments from Rufo's wages, and remit that sum to the MDOR. At all times relevant to this dispute, the Debtor was President, Treasurer, Clerk and Director of Rufo's employers, AA Environmental Cleaning Services Inc., and Canon Contracting Inc. In 1997, the MDOR filed a complaint for civil and criminal contempt against Rufo for non-payment of child support, and a complaint for civil contempt against the Debtor, AA Environmental, and Canon Contracting.² The state court allowed Rufo to maintain a cross-claim against the Debtor and his employers, and the trial was held on April 9, 2001, before Judge McGovern. Her findings of fact and conclusions of law are summarized below.

Beginning in July 1992 and continuing to January 1997, the Debtor as Rufo's employer deducted approximately $70 per week from Rufo's wages in accordance with the divorce judgment and income assignment.³ Rufo first became aware that his child support obligation was in arrears in 1993 when his income tax refund was intercepted by the MDOR and IRS. Between 1993 and 2000, over $10,000 of Rufo's federal and state income tax refunds and other property were seized or intercepted by the MDOR in satisfaction of accrued child support arrears. This arrearage was entirely the result of the Debtor David Virden's failure to comply with the income assignment order. Rufo testified, apparently very credibly, that when confronted the Debtor assured him that he would remedy the situation. However, the Debtor never did so. The Debtor was unable to explain to the State Court where Rufo's withheld wages ended up, or why he failed to comply with the income assignment order. The Court found the Debtor's wilful failure — or utter refusal — to properly forward Rufo's child support for roughly five years, egregious. Judge McGovern found that on one hundred and eighty-eight (188) occasions from July 1992 to January 1997, the Debtor disobeyed the clear and unequivocal order of the Probate Court and the income assignment. In total during this period, the Debtor was responsible for withholding $16,450 from Rufo's wages, but forwarding only $3,272.50 to the MDOR.⁴

As a direct result of the Debtor's malfeasance, Rufo was classified as a "deadbeat dad" and suffered many negative consequences: his income tax refunds and a bank account containing some $1,300 were seized by the MDOR or IRS; beginning in 1996, Rufo was denied a renewal of his driving license and was unable to drive for several years; he was unable to obtain credit cards and was denied loans; he was denied employment after background checks revealed his child support arrearage. Furthermore, in order to sort out the procedural and administrative morass that his life had become, Rufo was obliged to hire an attorney and incur considerable legal fees.

Judge McGovern also found the manner in which the Debtor had structured and managed his business endeavors and real estate holdings to be "deceptive and misleading". She found that the Debtor had "manipulated his personal property, real property, earnings, accountings, and investments so as to insulate himself from the contempt judgment liability, and so as to create the appearance of an inability to comply with the contempt judgment". Further, Judge McGovern says:

"The evidence produced at trial indicates at first blush that it might be difficult for Virden to comply with the Judgment of Contempt. The Court finds, however, that Virden has the ability to do so and is more than capable of complying with the Judgment of Contempt.

...In light of the creative manner by which Virden has structure(d) his finances and assets, Virden should have no difficulty in finding a creative way to comply with the Court's Judgment."⁵

Procedural History, Findings of Fact, and Conclusions of Law on Defendant/Plaintiff-in Cross-Claim's Complaint of Contempt, at 10.

Judge McGovern went on to find the Debtor's "nefarious conduct" wholly responsible for Rufo's attorney's fees in the amount of $29,039.64. Furthermore, the Judge found the Debtor liable for statutory penalties pursuant to M.G.L. c. 199A, § 12(f) in the amount of $25,000.⁶

Following the entry of Judge McGovern's decision, the Debtor made no attempts to pay Rufo's claim but instead filed this Chapter 13 bankruptcy case in an effort to see the debt discharged.

Discussion

The movant first argues that his debt is one for child support and as such the automatic stay does not apply by operation of 11 U.S.C. § 362(b)(2)(B)⁷. This argument must fail. It is well settled that the scope of the reference to alimony, maintenance or support contained in Section 362(b)(2)(B) is consistent with that contained in Section 523(a)(5). That is to say, the term "support" is restricted to amounts payable by the debtor to a spouse, former spouse, or child of the debtor in connection with a separation agreement, divorce decree or other order of a court of record. That is not the nature of the debt here, and consequently, the movant's claim is not excepted from the application of Section 362(a). Neither can the debt owed to Mr. Rufo be nondischargeable pursuant to 11 U.S.C. § 523(a)(5) for the same reason. Alternatively, Mr. Rufo seeks a declaration that his claim is nondischargeable pursuant to 11 U.S.C. § 523(a)(4), or (7). The Court need not decide whether or not Mr. Rufo's claim falls within the scope of these two subsections since neither category of debt is nondischargeable in a case under Chapter 13 of the Bankruptcy Code.

Finally, ...