Ning Yen Yao v. Kao (In re Kao)

• Decision Date: 06 February 2020
• Docket Number: Case No. 18-12350 (MG),Case No. AP No. 19-01071 (MG)
• Citation: 612 B.R. 272
• Parties: IN RE: Karen KAO, Debtor. Ning Yen Yao, Plaintiff, v. Karen Kao, Defendant.
• Court: U.S. Bankruptcy Court — Southern District of New York

612 B.R. 272

IN RE: Karen KAO, Debtor.Ning Yen Yao, Plaintiff,

v.Karen Kao, Defendant.

Case No. 18-12350 (MG)

Case No. AP No. 19-01071 (MG)

United States Bankruptcy Court, S.D. New York.

Signed February 6, 2020

BORG LAW LLP, Attorneys for Plaintiff, 370 Lexington Avenue, Suite 800, New York, NY 10017, By: Jonathan M. Borg, Esq.

Karen Kao, New York, NY, By: Karen Kao, pro se Defendant

MEMORANDUM OPINION GRANTING PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT

MARTIN GLENN, UNITED STATES BANKRUPTCY JUDGE

Pending before this Court is a summary judgment motion filed by Ning Yen Yao ("Plaintiff" or "Yao") against Karen Kao ("Defendant" or "Kao").¹ ("Summary Judgment Motion," ECF Doc. # 14.) Plaintiff Yao and Defendant Kao are parties to a contentious divorce proceeding in New York State Supreme Court (the "State Court") which, as explained below, resulted in a state court judgment that imposes payment obligations on both Yao and Kao. But as most relevant to this adversary proceeding, the state court judgment includes priority of payment provisions that condition Kao's receipt of payments from Yao on Kao's paying her obligation to Yao. Through her chapter 7 bankruptcy, Kao seeks to discharge her debt to her former husband Yao, while still requiring Yao to make payments to her required by the state court judgment even though the state court judgment required that she pay Yao before he had to pay her.

Yao's Summary Judgment Motion seeks an order (1) determining that the New York state court judgment, and subsequent money judgment order that require Kao to pay Yao $236,467.62, with interest at the rate of 9% from January 5, 2018 for non-retirement equitable distribution (the "Obligations"), are not dischargeable and (2) maintaining the priority of payment of the Obligations that require Kao to pay Yao $236,467.62 upon the entry of the judgment of divorce as a condition precedent to Yao's payment to Kao. ("Proposed Order," ECF Doc. # 13-14.) Plaintiff and his counsel filed Declarations in support of the Summary Judgment Motion. ("Plaintiff Decl.," ECF Doc. # 13-1; "Borg Decl.," ECF Doc. # 13-8.) Defendant Kao, pro se , filed two declarations in opposition to the Summary Judgment Motion. ("Opposition," ECF Doc. # 27; ECF Doc. # 24.)² Plaintiff filed a Reply. ("Reply," ECF Doc. # 28.)

For the reasons set forth below, the Court grants Plaintiff Yao's Summary Judgment Motion because Kao's debts to Yao are not dischargeable under 11 U.S.C. § 523(a)(15) ; the Court also concludes that, pursuant to the principle of res judicata, the State Court's determination that Kao has no right to setoff or offset Yao's obligation to her is binding on this Court. Only a New York state court may amend, modify or reverse the State Court ruling that Kao may not offset Yao's debt to her.

I. BACKGROUND

A. General Background

On October 11, 2007, Plaintiff Yao filed for divorce in State Court. (Plaintiff Decl. ¶ 3.) On December 27, 2017, pursuant to an agreement made on the record as to issues concerning custody and payment of a distributive award, the State Court issued an Amended Judgment of Divorce. ("Amended Judgment of Divorce," ECF Doc. # 10-1.) The Amended Judgment of Divorce ordered that Defendant Kao must pay Plaintiff Yao $236,467.62 in non-retirement equitable distribution. (Id. at 7.) Further, Yao must pay Kao $344,000 over the course of several years as Kao's distributive share of Yao's enhanced earning capacity ("Defendant's Distributive Share"). But the Amended Judgment of Divorce only required Yao to pay Kao after he receives Kao's payment. (Id. at 7–8.) The Amended Judgment of Divorce separately ordered a division of retirement accounts, child support, and counsel fees from Yao to Kao's former attorney. (Id. at 8–11.)

Subsequently, Yao filed an application for a money judgment for the non-retirement equitable distribution and for counsel fees incurred. On June 1, 2018, the State Court entered a money judgment order. ("Money Judgment Order," ECF Doc. #10-2.)³ The State Court ordered that Kao pay Yao $236,467.62 with interest at the rate of 9% from January 5, 2018—i.e. , the Obligations—pursuant to the Amended Judgment of Divorce, and, separately, pay Yao's counsel fees in the amount of $2,000 within thirty days of entry of the Money Judgment Order. (Id. at 3–4.)⁴ The Money Judgment Order stated that the State Court's Amended Judgment of Divorce denied Kao's application to offset her Obligations to Yao against Defendant's Distributive Share. Further, Kao's application for enforcement of the Amended Judgment of Divorce with regard to the transfer of marital retirement accounts was granted to the extent that Yao was directed to supply all information requested by Pension Actuaries Inc. for completion of the Qualified Domestic Relation Orders ("QDRO(s)") in this action by June 15, 2018. (Id. at 3–4.)

On July 31, 2018, Kao filed a voluntary petition under Chapter 7 of the Bankruptcy Code. ("Petition," Chapter 7 Case, ECF Doc. # 1.) The deadline to file a complaint objecting to Kao's discharge was extended by stipulation to February 28, 2019. ("Stipulation Extending Time to Oppose Discharge," Chapter 7 Case, ECF Doc. # 16; Borg Decl. ¶ 6.)

On February 27, 2019, Yao filed the Complaint commencing this adversary proceeding against Kao to (1) determine that the Obligations set forth in the Amended Judgment of Divorce and Money Judgment Order are non-dischargeable and (2) maintain the priority of Kao's payment of the Obligations as a condition precedent to Yao's payment of his obligations to Kao. ("Complaint," ECF Doc. # 1; Plaintiff Decl. ¶ 9.) On April 1, 2019, Kao filed an Answer. ("Answer," ECF Doc. # 5.) At a Case Management Conference on August 21, 2019, the Court granted Yao's request to file the Summary Judgment Motion. (Borg Decl. ¶ 15.)

B. Summary Judgment Motion

First, Plaintiff argues that the Obligations are not dischargeable because they are either for a domestic support obligation or debts arising out of a divorce decree or other order in the context of a matrimonial proceeding. (Summary Judgment Motion at 7–8 (citing 11 U.S.C. §§ 523(a)(5) and (15) ).) Plaintiff contends that the Obligations are moneys that are due to Plaintiff arising out of the Amended Judgment of Divorce, which is a "divorce decree" within the meaning of both sections 523(a)(5) and (15). Even if the debt does not constitute alimony, maintenance, or support, so as to be not dischargeable pursuant to section 523(a)(5), Plaintiff argues that it is within the scope of section 523(a)(15), which pertains to all other obligations arising out of a divorce decree, other than those covered by section 523(a)(5). (Id. at 7–9.)

Second, Plaintiff responds to Defendant's assertion that the Obligations should be set off against monies due to her from Plaintiff. (Summary Judgment Motion at 9; Answer ¶ 24.) Plaintiff argues that Defendant not only fails to provide any legal or equitable basis for this purported defense but omits to acknowledge that the State Court already specifically rejected her request for such a setoff. (Summary Judgment Motion at 9–10.) Plaintiff contends that the res judicata doctrine precludes Defendant from relitigating this issue and requires that the priority of Defendant's payment of the Obligations be maintained as a condition precedent to the payment by Plaintiff to Defendant of amounts due under the Amended Judgment of Divorce. (Id. )

C. Defendant's Opposition

Defendant requests that the Court offset Defendant's Obligations to Plaintiff with Plaintiff's obligations toward Defendant, including Defendant's Distributive Share, the division of retirement account assets, and payment of child support arrears.

(Opposition ¶¶ 5–7.)⁵ Defendant further requests the Court stop interest from accruing on the Obligations from the date Plaintiff was supposed to divide retirement assets, June 15, 2018, until Plaintiff complies. (Id. ¶ 5.)

Defendant argues that Plaintiff has failed to pay Defendant funds from the retirement accounts, as required by the Amended Judgment of Divorce. (Opposition ¶ 4; see Amended Judgment of Divorce at 8.) Defendant represents that there is no condition precedent to have Plaintiff comply with the division of retirement assets owed to Defendant. (Opposition ¶ 4.) Defendant also states that Plaintiff has not provided all necessary statements to Pension Actuaries Inc. as required by the Amended Judgment of Divorce and has failed to comply with other provisions of the Amended Judgment of Divorce regarding retirement assets. (Id. ) On November 12, 2019, Defendant filed a Notice of Settlement in the State Court and the matter regarding the retirement accounts was before the State Court as of the filing of the Opposition. ("Notice of Settlement," ECF Doc. # 27-2 at 8.) Defendant further represents that a hearing was scheduled for January 30, 2020 in New York State Family Court regarding child support arrears owed by Plaintiff.⁶ (Opposition ¶ 6.)

D. Reply to Summary Judgment Opposition

Plaintiff's Reply argues that Defendant fails to provide any bases for why the priority accorded to the payment of her Obligations to Plaintiff should not be maintained and why her debts to Plaintiff should be determined to be dischargeable. (Reply at 4.) Plaintiff contends that issues related to Plaintiff's obligation toward Defendant, including domestic support arrears, are not relevant to the issue of dischargeability before this Court and are rather properly addressed in the matrimonial action before the State Court. (Id. ) Plaintiff also states that while Defendant argues she should be allowed to offset the Obligations against the Distributive Award due to her, the State Court already rejected that position, and that the Rooker - Feldman doctrine precludes Plaintiff from relitigating this point. (Id. at 5.) Further, Defendant's request that the Court stop the interest from accruing on the Money Judgment Order is without legal support. (Id. )

II. LEGAL STANDARD

A. Summary...