McFadden v. Putnam (In re Putnam)

• Decision Date: 30 August 2012
• Docket Number: Case No. 10-19719-A-7,Adv. No. 10-01261-A
• Court: U.S. Bankruptcy Court — Eastern District of California
• Parties: In re ROBERT A. PUTNAM, Debtor. KELLIE M. McFADDEN, Plaintiff, v. ROBERT A. PUTNAM, Defendant.

In re ROBERT A. PUTNAM, Debtor.

KELLIE M. McFADDEN, Plaintiff,

v.ROBERT A. PUTNAM, Defendant.

Case No. 10-19719-A-7

Adv. No. 10-01261-A

UNITED STATES BANKRUPTCY COURT EASTERN DISTRICT OF CALIFORNIA FRESNO DIVISION

Dated: August 30, 2012

POSTED ON WEBSITE

NOT FOR PUBLICATION

MEMORANDUM DECISION FOLLOWING TRIAL ON

NONDISCHARGEABILITY OF PARTICULAR DIVORCE-RELATED DEBTS

John Bianco, Esq., of the Bianco Law Firm, appeared on behalf of the plaintiff Kellie McFadden. Scott Lyons, Esq., of the Law Offices of Scott Lyons, appeared on behalf of the defendant Robert Putnam.

Before the court is a complaint filed under Rule 4007¹ in an adversary proceeding initiated by the plaintiff Kellie McFadden ("McFadden") against her former spouse, the defendant-debtor Robert Putnam ("Putnam"), seeking declaratory relief that certain debtsassigned to Putnam under a dissolution judgment are excepted from discharge under §§ 523(a)(5) and (a)(15). On May 4, 2012, the court held a trial on the matter, where both parties, represented by their own counsel, presented their arguments, testimony, and evidence. After the filing of post-trial briefs, the court took the matter under submission on May 31, 2012. For the reasons set forth below, the court finds that these debts under the dissolution judgment—to the extent they represent Putnam's obligations enforceable by and payable to McFadden—are nondischargeable.²

I. FACTUAL BACKGROUND.

McFadden and Putnam were married in May 1997. Their union produced two children, both still minors. Prior to their separation, Putnam was a self-employed businessman, operating the corporation R.A. Putnam Financial & Insurance Services ("Putnam Financial"). Though not much was presented at trial about this business, McFadden did describe Putnam Financial as being always profitable. However, the parties agreed that the income from the business fluctuated from month to month. It appeared that Putnam's income in 2010 fluctuated as well; sometimes he was earning up to $5,000 a month but was averaging roughly $3,000 in monthly income according to his bankruptcy schedules and statements. Apparently, in addition to his salary, Putnam Financial was also paying for Putnam's personal expenses in at least one year. Other than these limited facts presented at trial, Putnam's financial situation remains somewhat unclear. And as to McFadden, the record is silent as to her employment status and her income-earning power during this relevant period.³

Their marriage ended in July 2009 when the two separated and McFadden filed for divorce in the Tulare County Superior Court (the "State Court").⁴ After a lengthy dissolutionprocess, the State Court entered two judgments on May 6, 2010. The first was the Judgment of Dissolution of Marriage⁵ (the "First Judgment"), which incorporated the first of the parties' marital settlement agreements entitled Stipulation for Judgment to Be Taken⁶ (the "First Incorporated MSA"). This judgment dealt primarily with the division of the parties' assets and liabilities. The second judgment was the Judgment on Reserved Issues⁷ (the "Second Judgment"), which incorporated the Stipulation and Order for Entry of Judgment,⁸ the other marital settlement agreement (the "Second Incorporated MSA"). In contrast to the First Judgment, the second mainly resolved the parties' issues on domestic support and custody. Together, these two judgments represented the parties' comprehensive agreement regarding the dissolution of their marriage, the division of property, and the issue of domestic support (collectively, the "Dissolution Judgment"). Relevant to this proceeding are four of Putnam's obligations incorporated into the Dissolution Judgment:

A. Putnam's Obligation to Make Monthly Lease Payments.

Among the parties' community debts before their separation was a vehicle lease with GMAC for a 2007 GMC Yukon Denali (the "Denali"), in which both McFadden and Putnam remained liable for any obligations under the lease. After making one last payment in March 2010, Putnam ceased making payments on the lease entirely. At that point, the monthly lease obligation amounted to $1,272.89, with the lease set to expire on October 24, 2010 and with eight monthly payments still remaining.

As part of the First Incorporated MSA, McFadden obtained possession of the leased Denali as her separate property. Yet, pursuant to the Second Incorporated MSA, Putnam was ordered—"[i]n lieu of spousal support"—to continue making the monthly payments on the lease,as well as paying the vehicle insurance premiums on the Denali through October 24, 2010, the date of the lease's termination. Putnam's lease obligation under the Dissolution Judgment was actually a continuation of a prior interim order from the State Court entered on July 31, 2009⁹ (the "July Interim Order"). After October 24, 2010, Putnam was no longer responsible for paying McFadden's vehicle insurance. His monthly lease payments also ended on this date with the expiration of the lease. However, the Second Incorporated MSA imposed an additional financial obligation upon Putnam. Beginning November 2010, Putnam was required to make spousal support payments to McFadden in the amount of $750 a month through March 2011 and then $500 a month beginning the next month.¹⁰

Though Putnam was obligated under the Dissolution Judgment to make the lease payments to GMAC on McFadden's behalf, he failed to make the eight remaining payments. As a result, the Denali was repossessed on August 4, 2010, with less than three months left on the lease's term. At that time, the outstanding balance due to GMAC on the lease was $10,895.33.¹¹ On December 9, 2011, through a collections agent, GMAC demanded payment from Putnam for the balance, which GMAC had calculated to be $10,036.61. Currently, it is unclear whether GMAC has made further demands from Putnam or whether it has ever demanded payment from McFadden.

B. Putnam's Obligation to Make the Down Payment for McFadden's New Vehicle.

Also, as part of the First Incorporated MSA, Putnam was ordered, "upon expiration of the Denali lease, [to] pay the sum of $2,200.00 directly to the auto dealership of [McFadden's] choosing as down payment assistance for a future vehicle for [McFadden]."

Realizing that Putnam was not making the lease payments and anticipating the impending repossession of the Denali, McFadden obtained a 2010 Chevrolet Traverse from the dealershipRichard's Chevrolet of Corcoran ("Richard's Chevrolet") on July 31, 2010, before the October expiration of the Denali lease. With permission from her father Steven McFadden ("Steven") and with the knowledge of the dealership, McFadden executed the vehicle purchase agreement in her father's name, where McFadden printed and signed the agreement as "Steven McFadden."

Not having demanded or received the $2,200 down payment assistance from Putnam, McFadden could not put any money down, and the entire $31,585.85 purchase price for the vehicle had to be fully financed by a lender. The vehicle finance agreement was also executed in Steven's name but without the lender's knowledge about McFadden's arrangement with her father and the dealership. Though the title for the vehicle and the accompanying loan appear to be in Steven's name, McFadden nevertheless maintains that the vehicle is hers.

C. Putnam's Obligation to Pay McFadden's Attorney's Fees.

Next, under the First Incorporated MSA, Putnam was obligated to pay $10,000 for McFadden's attorney's fees, paid directly to her attorney, Dale Bruder ("Bruder"). This provision incorporated a prior order entered on December 31, 2009 by the State Court¹² (the "December Interim Order"). Specifically, pursuant to this order, Putnam was required to "pay [McFadden's] counsel $2,500.00 today [on December 31, 2009], and $500.00 per month beginning January 1, 2010 and continuing on the first of each month thereafter until the full $10,000.00 sum has been paid." The First Incorporated MSA further provided that upon full payment of these attorney's fees, Putnam was "required to pay one-half of the total costs of tuition for the children's continued attendance at St. Paul's School." If Putnam had followed the payment schedule from the December Interim Order, the final $500 payment to Bruder would have become due in March 2011, and Putnam's subsequent obligation to pay tuition expenses would have begun the following month.

However, Putnam did not pay the entire amount of attorney's fees as required. He made the initial $2,500 payment and the next two monthly payments of $500, paying off only $3,500 of his $10,000 obligation to Bruder. At the time that Putnam filed his bankruptcy petition, theremaining $6,500 balance was still outstanding.

In addition to the $6,500 owed by Putnam, Bruder was also entitled to a substantial amount of attorney's fees from McFadden for representing her in the dissolution. Steven, on behalf of his daughter, decided to pay the remainder of attorney's fees owed to Bruder, including the Putnam's $6,500 portion. Steven made the payment directly to Bruder based on an understanding with McFadden that she would later repay him the amount advanced on her behalf. That payment occurred subsequent to the date of Putnam's bankruptcy filing but prior to the date of the nondischargeability trial.

D. Putnam's Obligation to Pay a Family Loan Owed to McFadden's Father.

Also among the parties' community debts was a family loan owed to Steven for $15,000. This debt was described simply as a "business debt" without any other details. As part of the property division set out in the First Incorporated MSA, Putnam agreed to accept this debt "as his sole and separate debt[ ] without any offset or equalization being owed to him from the community for his acceptance." In addition to assuming the family loan obligation as his own debt, Putnam also "agree[d] to save and hold [McFadden] harmless from any and all liability for [this] obligation[ ]." Other than stating that Putnam...