Panos & Assocs., LLC v. Mitchell (In re Mitchell), Case No. 10 B 39862
| Decision Date | 04 June 2013 |
| Docket Number | Case No. 10 B 39862,Adv. No. 11 A 1 |
| Parties | In re: JOSEPH R. MITCHELL, Debtor. PANOS & ASSOCIATES, LLC, Plaintiff, v. JOSEPH R. MITCHELL, Defendant. |
| Court | United States Bankruptcy Courts. Seventh Circuit. U.S. Bankruptcy Court — Northern District of Illinois |
In re: JOSEPH R. MITCHELL, Debtor.
PANOS & ASSOCIATES, LLC, Plaintiff,
v.
JOSEPH R. MITCHELL, Defendant.
Case No. 10 B 39862
Adv. No. 11 A 1
UNITED STATES BANKRUPTCY COURT NORTHERN DISTRICT OF ILLINOIS EASTERN DIVISION
Date: June 4, 2013
This matter comes before the court following trial on the complaint brought by Plaintiff Panos & Associates, LLC ("Panos") against Defendant Joseph R. Mitchell ("Mitchell"), seeking a finding that the debt Mitchell owes to Panos is nondischargeble under 11 U.S.C. §§ 523(a)(5) and 523(a)(15). No witnesses appeared, and no testimony was taken at the trial. Having heard arguments by the parties and reviewed the exhibits admitted into evidence as well as trial and post-trial briefs, the court enters judgment in favor of Mitchell on the § 523(a)(5) claim and in favor of Panos on the § 523(a)(15) claim. Thus, the debt Mitchell owes to Panos is nondischargeable pursuant to § 523(a)(15).
The court has jurisdiction over this matter pursuant to 28 U.S.C. § 1334(b) and Internal Operating Procedure 15(a) of the United States District Court for the Northern District of Illinois. This matter is a core proceeding under 28 U.S.C. § 157(b)(2)(I).
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Dana Reyna-Mitchell ("Dana") filed a Petition for Dissolution of Marriage against Mitchell in the Circuit Court of Cook County, Illinois, case number 02 D 17937. Pl. Ex. 1. The Circuit Court entered a Judgment for Dissolution of Marriage between Dana and Mitchell on March 31, 2003. Id.
Dana retained Panos to represent her interests in post-decree matters. Subsequently, Panos represented Dana in an action in the Circuit Court of Cook County captioned Dana Reyna-Mitchell NKA Dabaco v. Joseph Mitchell, No. 02 D 17937. On August 25, 2006, the Circuit Court entered judgment in favor of Panos and against Mitchell in the amount of $19,000.00 for attorney's fees owed to Panos. Pl. Ex. 13. On September 8, 2009, the Circuit Court entered judgment in favor of Panos and against Mitchell in the amount of $49,875.00 for attorney's fees owed to Panos. Pl. Ex. 31.2 While the orders do not cite the Illinois statute pursuant to which judgment was entered, Mitchell admitted that the orders were entered by the state court pursuant to 750 ILCS 5/508(b) and 750 ILCS 5/501(c-1), which are sections of the Illinois Marriage and Dissolution of Marriage Act that govern the award of attorney's fees. Answer, ¶¶ 10-11.
On September 3, 2010, Mitchell filed a voluntary petition for relief under Chapter 7 of the Bankruptcy Code and listed the judgment debt to Panos on his bankruptcy schedules as an unsecured claim. On January 2, 2011, Panos commenced the instant adversary proceeding. On December 14, 2011, Panos filed an Amended Motion for Leave to Amend Complaint, requesting
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authority to add a count that the debt is nondischargeable as a "willful and malicious injury." (Dock. No. 22). The court denied the motion on January 19, 2012. (Dock. No. 26).3
On April 26, 2012, a trial was held on the complaint. No witnesses testified at trial on either party's behalf. The court admitted Panos' Exhibits 1, 13 and 31, and Mitchell's Exhibit 2. The admitted exhibits were the sole evidence introduced at trial by the parties. The court repeatedly questioned counsel for the parties as to whether there were any factual disputes and whether they desired to introduce any evidence in addition to the four admitted exhibits. (Tr. at 10-15).4 The parties agreed that the question for the court was a matter of law and declined the opportunity to introduce additional evidence. Id. The parties filed trial and post-trial briefs5 and the court took the matter under advisement.
The party alleging that a debt is nondischargeable pursuant to 11 U.S.C. § 523 bears the burden of proving the nondischargeability by a preponderance of the evidence. Grogan v. Garner, 498 U.S. 279, 286-87, 111 S. Ct. 654, 112 L. Ed. 2d 755 (1991). The discharge provisions of § 523 are construed strictly against the creditor and liberally in favor of the debtor in order to further the policy of providing the debtor with a fresh start. See In re Crosswhite, 148 F.3d 879, 881 (7th Cir. 1998). The policy of protecting the debtor "is tempered, however, when the debt arises from a divorce or separation agreement." Id. Sections 523(a)(5) and (a)(15) express Congressional determination to protect former spouses in matters of alimony, support
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and other divorce-related debts despite the Bankruptcy Code's general policy of providing a debtor with a fresh start. Id. at 881-82.
A. Nondischargeability Under §§ 523(a)(5) and (a)(15)
In Count I of the complaint, Panos seeks a determination that Mitchell's obligation to pay attorney's fees is nondischargeable pursuant to 11 U.S.C. § 523(a)(5). That section excepts from discharge debts for a "domestic support obligation." 11 U.S.C. § 523(a)(5). The term "domestic support obligation" is separately defined as a debt that is:
(A) owed to or recoverable by—(i) a spouse, former spouse, or child of the debtor or such child's parent, legal guardian, or responsible relative; or(B) in the nature of alimony, maintenance, or support (including assistance provided by a governmental unit) of such spouse, former spouse, or child of the debtor or such child's parent, without regard to whether such debt is expressly so designated;
(ii) a governmental unit;
(C) established or subject to establishment before, on, or after the date of the order for relief in a case under this title, by reason of applicable provisions of—(i) a separation agreement, divorce decree, or property settlement agreement;(D) not assigned to a nongovernmental entity, unless that obligation is assigned voluntarily by the spouse, former spouse, child of the debtor, or such child's parent, legal guardian, or responsible relative for the purpose of collecting the debt.
(ii) an order of a court of record; or
(iii) a determination made in accordance with applicable nonbankruptcy law by a governmental unit; and
11 U.S.C. § 101(14A).
In Count II, Panos seeks a finding that its debt is nondischargeable pursuant to 11 U.S.C. § 523(a)(15), which provides that:
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(a) A discharge under section 727... of this title does not discharge an individual debtor from any debt—(15) to a spouse, former spouse, or child of the debtor and not of the kind described in paragraph (5) [domestic support obligation] that is incurred by the debtor in the course of a divorce or separation or in connection with a separation agreement, divorce decree or other order of a court of record, or a determination made in accordance with State or territorial law by a governmental unit.
Subsection (15) was added to the Bankruptcy Code in 1994 because § 523(a)(5) was too narrow to cover many divorce-related debts. See Crosswhite, 148 F.3d at 882. Section 523(a)(15) is "intended to provide greater protection for alimony, maintenance, and support obligations owing to a spouse, former spouse or child of a debtor in bankruptcy." H.R. Rep. No. 103-835, at 54 (Oct. 4, 1994), reprinted in 1994 U.S.C.C.A.N. 3340, 3363. The legislative history reflects Congressional policy that "a debtor should not use the protection of a bankruptcy filing in order to avoid legitimate marital and child support obligations." Id. Thus, § 523(a)(15) "protects those debts which do not meet the test of 'domestic support obligations' under section 523(a)(5)." Johnson v. Johnson (In re Johnson), 2012 WL 2835462, *2 (Bankr. CD. Ill. July 10, 2012).
Section 523(a)(15) originally allowed debtors to discharge their divorce-related debts if they could show a lack of ability to pay, or that discharging the debt would result in a benefit to the debtor that outweighed the detriment to the non-debtor spouse. In 2005, however, the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 ("BAPCPA") eliminated these limitations, reflecting Congressional intent to bring as many divorce-related debts as possible under § 523. See Clair, Griefer LLP v. Prensky (In re Prensky), 416 B.R. 406, 410 (Bankr. D.N.J. 2009) ("Clearly, the amendments were intended to increase the scope of the discharge exception effected by the 2005 amendments and not limit the protection to three
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distinct classes of creditors - spouses, former spouses and children of the debtor."), aff'd, Prensky v. Clair, Griefer LLP, 2010 WL 2674039 (D.N.J. June 30, 2010).
1. Debts Payable to Third Parties
An issue arises when the debt owed by a debtor is payable directly to a third party rather than to the non-debtor spouse. This is because § 523(a)(5), by incorporating the definition of a "domestic...
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