Matter of Burch, Bankruptcy No. 86-5851-8B1

• Decision Date: 25 May 1989
• Docket Number: Adv. No. 87-52.,Bankruptcy No. 86-5851-8B1
• Citation: 100 BR 585
• Parties: In the Matter of Baxter Arnold BURCH, Jr., Debtor. Baxter Arnold BURCH, Jr., Plaintiff, v. Carol A. BURCH, Edward Leonard, Barry Isenburg and Larry K. Coleman, Defendants.
• Court: U.S. Bankruptcy Court — Middle District of Florida

100 B.R. 585 (1989)

In the Matter of Baxter Arnold BURCH, Jr., Debtor Baxter Arnold BURCH, Jr., Plaintiff, v. Carol A. BURCH, Edward Leonard, Barry Isenburg and Larry K. Coleman, Defendants.

Bankruptcy No. 86-5851-8B1, Adv. No. 87-52.

United States Bankruptcy Court, M.D. Florida, Tampa Division.

May 25, 1989.

Richard A. Zeller, St. Petersburg, Fla., for plaintiff.

Raymond C. Farfante, Jr., Tampa, Fla., for defendants.

ORDER ON CROSS MOTIONS FOR SUMMARY JUDGMENT

THOMAS E. BAYNES, Jr., Bankruptcy Judge.

THIS CAUSE came on to be heard upon the Plaintiff/Debtor's Complaint under Section 523(a)(5) to determine the dischargeability of certain debts owed to the Debtor's ex-wife, Defendant Carol A. Burch, her attorney, and her accountant as established by a Final Judgment of Dissolution of Marriage, as amended, entered by the Circuit Court of Manatee County, Florida. The parties have filed reciprocal motions for summary judgment, affidavits, and transcripts of hearings before the state court, one of which concerns a clarification of the final judgment. Notwithstanding the argument at the hearing on clarification, the state court denied clarification of its final judgment.

The Debtor admits the items of alimony and support challenged in paragraph 10 of his Complaint are nondischargeable under Section 523(a)(5) of the Bankruptcy Code. The only issue remaining therefore is whether the following obligations of the Debtor as set forth in paragraph 11 of the Complaint are dischargeable under Section 523(a)(5).

A. A transfer to the ex-wife of the marital home;

B. Reimbursement to the ex-wife of money paid to a Dr. Ritt;

C. A lump-sum alimony award of $220,500.00 characterized by the state court as equitable distribution, payable by a $10,000 payment within 90 days of the final judgment of dissolution with the balance payable at $1,200 per month;

D. The securing and maintenance of life insurance in an amount to secure payment of the $220,500.00 equitable distribution, the ex-wife being named beneficiary;

E. That the Debtor hold his ex-wife harmless regarding the pending litigation concerning the solar hot water heater;

F. The ex-wife's expert witness fees;

G. The ex-wife's attorney's fees;

SCOPE OF INQUIRY UNDER 523(a)(5)

The scope of inquiry under Section 523(a)(5) requires a review of the bankruptcy court's role vis-a-vis a state court determination in a divorce case. This Court is guided by the Eleventh Circuit's decision in Harrell v. Sharp (In re Harrell), 754 F.2d 902 (11th Cir.1985). In that decision, the Eleventh Circuit states:

The language used by Congress in § 523(a)(5) requires bankruptcy courts to determine nothing more than whether the support label accurately reflects that the obligation at issue is `actually in the nature of alimony, maintenance, or support.\' The statutory language suggests a simple inquiry as to whether the obligation can legitimately be characterized as support, that is, whether it is in the nature of support. The language does not suggest a precise inquiry into financial circumstances to determine precise levels of need or support; nor does the statutory language contemplate an ongoing assessment of need as circumstances change.

Harrell, at 906. The language partially rejects the concept established by the Sixth Circuit in Long v. Calhoun (In re Calhoun), 715 F.2d 1103 (6th Cir.1983). In Calhoun, the Sixth Circuit held Section 525(a)(5) requires the bankruptcy court to inquire into the divorced parties' prospective needs, change in circumstances, and continual need for support. See, Helm v. Helm (In re Helm), 48 B.R. 215 (Bankr.W. D.Ky.1985), aff'd on rehearing, 49 B.R. 573 (Bankr.W.D.Ky.1985).

Harrell clearly indicates the bankruptcy court is empowered to characterize items in the nature of support which are not authorized as support under state law. It does not matter that the particular item to be determined in the nature of support could have been similarly characterized by the state court. This Court's inquiry is founded in federal bankruptcy law and not on state law. See, Williams v. Williams (In re Williams), 703 F.2d 1055 (8th Cir. 1983); Lovette v. Cox (Matter of Cox), 68 B.R. 307 (Bankr.M.D.Fla.1986); Chambers v. Heverly (Matter of Heverly), 68 B.R. 21 (Bankr.M.D.Fla.1986); Norton v. Norton (Matter of Norton), 65 B.R. 140 (Bankr.M. D.Fla.1986).

Harrell, however, does not establish a criteria to guide the bankruptcy judge in characterizing the obligation. Such criteria is necessary to prevent possible conflicting characterizations by individual judges. Precedent and stare decisis requires a court to insure that future litigants can determine what the courts will do for them or to them. K.N. Llewellyn, The Bramble Bush on Our Law and Its Study, 12 (1960); Holmes, The Path of the Law, 10 Harvard L.Rev. 457, 460, 461 (1897).

The purpose of the Bankruptcy Court's inquiry is to ascertain the intent of the divorce court, or in the case of a settlement agreement, the intent of the parties as to each particular obligation established therein without looking to the labels used by the court or the parties. See, Heverly, supra; In re Usher, 442 F.Supp. 866 (N.D. Ga.1977); MacDonald v. MacDonald (In re MacDonald), 69 B.R. 259 (Bankr.N.J.1986); Harke v. Harke (In re Harke), 24 B.R. 645 (Bankr.E.D.Mo.1982). Since the Bankruptcy Court's review is limited to characterizing support obligations within a framework of intent gleaned from the state court final judgment, the doctrine of collateral estoppel may be available.

COLLATERAL ESTOPPEL

Utilization of the doctrine of collateral estoppel requires a two step analysis in accordance with the Supreme Court's decision in Marrese v. American Academy of Orthopaedic Surgeons, 470 U.S. 373, 105 S.Ct. 1327, 84 L.Ed.2d 274 (1985); Chang v. Daniels (In re Daniels), 91 B.R. 981 (Bankr.M.D.Fla.1988). See also, Shafer v. Wintrow (In re Wintrow), 57 B.R. 695 (Bankr.S.D.Oh.1986). In Daniels, this Court noted Marrese's requirement that state law give preclusive effect to the final judgment. The analysis: (a) Was the final judgment valid and final on the merits? (b) Was there an identity of issues in the prior litigation? (c) Was there an identity of the parties or privity between the parties in both the prior and present litigation? and (d) Was the issue sought to be precluded actually litigated and determined in the previous case? Molldrem v. Wagner (Matter of Wagner), 79 B.R. 1016, 1020 (Bankr. W.D.Wis.1987). In the case at hand the answer to these questions is yes. See, Pumo v. Pumo, 405 So.2d 224 (Fla. 3rd DCA 1981).

The second part of the Marrese analysis determines whether Congress has intended the particular federal law to preempt the state court adjudication. Daniels, at 983; Title 28 U.S.C. § 1738. Clearly, the answer is a qualified yes—bankruptcy law does preempt. As noted above, however, in domestic relations cases, the inquiry is limited to characterizing the obligations as support or property settlement and not to redetermining or relitigating the facts. Harrell, at 907. Within this limitation, the doctrine of collateral estoppel can be applied.

Nevertheless, collateral estoppel may be used to preclude re-litigation of certain issues that were litigated in the state Court. Findings on those issues may be considered as evidence in the § 523 dischargeability proceeding ... To the extent that the findings of fact and conclusions of law in the state Court divorce judgment may be used as evidence in these adversary proceedings, the parties are precluded from relitigating those findings and conclusions.¹

Calisoff v. Calisoff (In re Calisoff), 92 B.R. 346, 350 (Bankr.N.D.Ill.1988). This Court will not follow the pre-Marrese holding in Reed v. Reed (In re Reed), 31 B.R. 116 (Bankr.Conn.1983). Our position on the use of collateral estoppel is bolstered by Rose v. Rose, 481 U.S. 619, 107 S.Ct. 2029, 95 L.Ed.2d 599 (1987).

We have consistently recognized that `the whole subject of the domestic relations of husband and wife, parent and child, belongs to the laws of the States and not to the laws of the United States.\' In re Burrus, 136 U.S. 586, 593-594, 10 S.Ct. 850, 852-853, 34 L.Ed. 500 (1890); see Hisquierdo, v. Hisquierdo, supra, 439 U.S. 572 at 581, 99 S.Ct. 802 at 808 59 L.Ed.2d 1 (1971); McCarty v. McCarty, supra, 453 U.S. 210, at 220, 101 S.Ct. 2728, at 2735 69 L.Ed.2d 589 (1981). `On the rare occasion when state family law has come into conflict with a federal statute, this Court has limited review under the Supremacy Clause to a determination whether Congress has `positively required by direct enactment\' that state law be pre-empted.\' Hisquierdo, supra, 439 U.S., at 581, 99 S.Ct., at 808, quoting Wetmore v. Markoe, 196 U.S. 68, 77, 25 S.Ct. 172, 175, 49 L.Ed. 390 (1904). Before a state law governing domestic relations will be overriden, it `must do `major damage\' to `clear and substantial\' federal interests.\' Hisquierdo, supra, 439 U.S., at 581, 99 S.Ct., at 808, quoting United States v. Yazell, 382 U.S. 341, 352, 86 S.Ct. 500, 506, 15 L.Ed.2d 404 (1966).

Id., 481 U.S. at 625, 626, 107 S.Ct. at 2033, 2034, 95 L.Ed.2d at 607, 608.

In its search to find the intent of the state court, this Court cannot ignore that the state court was perceiving the evidence and made its decision in light of developed principles of Florida domestic relations law. However, there must be absolute harmony between the bankruptcy court's limited inquiry and the state court's previous determination in order for collateral estoppel to be applied without causing "major damage" to the federal interest. Rose, supra, 107 S.Ct. at 2033.

An important aspect of the doctrine of collateral estoppel is the shifting burdens of proof in a dischargeability action. Traditionally, a Court's mere statement that the party challenging the dischargeability of a debt has the burden of proof would suffice. Schweig v. Hunter (In re Hunter), 780 F.2d 1577 (11th...