Roach v. Fitzstephens, 324146

• Decision Date: 12 May 2016
• Docket Number: No. 324146,324146
• Parties: PEGGY S. ROACH, a/k/a PEGGY S. FITZSTEPHENS, Plaintiff-Appellee, v. DANIEL J. FITZSTEPHENS, Defendant-Appellant.
• Court: Court of Appeal of Michigan — District of US

PEGGY S. ROACH, a/k/a PEGGY S. FITZSTEPHENS, Plaintiff-Appellee, v. DANIEL J. FITZSTEPHENS, Defendant-Appellant.

No. 324146

STATE OF MICHIGAN COURT OF APPEALS

May 12, 2016

UNPUBLISHED

Van Buren Circuit Court

LC No. 13-630647-CZ

Before: MURPHY, P.J., and WILDER and BORRELLO, JJ.

PER CURIAM.

Defendant appeals as of right the trial court's order denying his motion for summary disposition under MCR 2.116(C)(10) and granting summary disposition in favor of plaintiff pursuant to MCR 2.116(I)(2). We affirm.

Plaintiff and defendant married on August 27, 1983. Subsequently, plaintiff filed for divorce, and a judgment of divorce was entered on October 30, 2006. Prior to the entry of the divorce judgment, the parties executed a property settlement agreement dated October 19, 2006. According to the settlement agreement and the divorce judgment, the settlement agreement was incorporated but not merged into the divorce judgment.¹ Under the terms of the settlement agreement, defendant was awarded the marital home, with plaintiff being awarded $13,500 for her interest in the property, which payment obligation was secured by a mortgage on the home. Defendant was to pay plaintiff the $13,500 in 24 monthly installments of $613, subject to interest and late fees.

The settlement agreement further provided that defendant was awarded the parties' landscaping and tree farm business, which encompassed both real and personal property, with plaintiff being awarded $64,000 for her interest in the business, which payment obligation was secured by a lien on the business's real estate.² Defendant was to pay plaintiff the $64,000 pursuant to annual installments, starting with an initial payment to be made no later than January 5, 2007,followed by six equal annual payments, subject to interest and late fees. The settlement agreement and the divorce judgment provided that plaintiff was awarded 100 percent of defendant's defined contribution plan that accrued during the marriage. The settlement agreement indicated that while plaintiff was awarded 100 percent of defendant's defined contribution plan, 50 percent of the award was to be immediately withdrawn by plaintiff and then applied, after income taxes and a car debt were paid, toward the first installment payment owed by defendant to plaintiff relative to division of the landscaping and tree farm business.³ Additionally, the settlement agreement and the divorce judgment provided that plaintiff was awarded 50 percent of defendant's defined benefit plan that accrued during the marriage.⁴ The settlement agreement indicated that three years after entry of the judgment of divorce, an amended QDRO "shall enter" awarding plaintiff 100 percent "of said account," with plaintiff to immediately withdraw the funds, pay income taxes, and then "apply the remaining balance to the indebtedness on the [landscaping and tree farm business]," i.e., the $64,000 debt.⁵ This provision did not state whether it pertained to the defined benefit plan or the defined contribution plan.⁶ Finally, the divorce judgment awarded plaintiff $880 per month in spousal support running from July 1, 2007, to June 1, 2014, with additional spousal support being reserved for purposes of enforcement of defendant's obligations to pay the $13,500 and $64,000 relative to the house and business.

With respect to the $13,500 home-related award, defendant made the $613 monthly payments for several years, but eventually stopped, owing a balance of approximately $3,000. With respect to the $64,000 business-related award, defendant received credit for an initial payment of approximately $10,000, which, it appears, came from, as contemplated by the settlement agreement, plaintiff's liquidation of 50 percent of the 100 percent, marriage-accrued share of defendant's defined contribution plan that was awarded to plaintiff. No more payments were made on this debt. There is no dispute that an amended QDRO was never entered.

Bankruptcy proceedings are relevant to this case and, unfortunately, the record below was not very well developed by the parties with respect to documentary evidence and argumentspertaining to the bankruptcy proceedings, as well as to ambiguities in the settlement agreement and divorce judgment. It appears that in December 2005 plaintiff and defendant jointly filed for bankruptcy protection under title 11 of the United States Code, the Bankruptcy Code, and more particularly chapter 13, 11 USC 1301 et seq., in the United States Bankruptcy Court for the Western District of Michigan.⁷ This was prior to entry of the judgment of divorce. The bankruptcy petition was dismissed on October 10, 2008, nearly two years after the divorce was finalized, "for failure to pay filing fee."

In November 2008, defendant filed his own chapter 13 bankruptcy petition. In July 2009, the case was converted to a chapter 7 bankruptcy proceeding, 11 USC 701 et seq. (liquidation). In April 2010, defendant obtained a debtor discharge from the bankruptcy court, 11 USC 727, and the bankruptcy case was closed in May 2010.⁸ In the instant case, defendant submitted various bankruptcy schedules, which, as best we can glean, were associated with defendant's chapter 13 filing in November 2008. Those schedules failed to list plaintiff as a creditor, secured or unsecured, and failed to identify defendant's debts arising out of the settlement agreement and divorce judgment. Schedule A concerned real property and identified the former marital home and the land used in the business.⁹ Schedule C, which addressed property claimed as exempt, listed $34,160 in a401(k), which necessarily pertained to the defined contribution plan,¹⁰ and $7,180 relative to the business real estate. There is no mention of any defined benefit plan, nor any indication that the defined benefit plan was part of the bankruptcy estate.¹¹ In his appellate brief, defendant asserts that the assets of the bankruptcy estate, including his "retirement accounts" and the business property, both real and personal, "were liquidated and the proceeds distributed to the secured creditors[.]" At the summary disposition hearing, counsel for defendant stated:

All of the assets to which [plaintiff] had a claim in prior to . . . [defendant] filing bankruptcy became assets of the [bankruptcy] estate and to a large extent were liquidated [for] payment of the debts of the estate . . . and no longer existed after the time of discharge in April of 2010.

The lower court record contains no documentary evidence establishing what property was actually liquidated, determined to be exempt, or was otherwise not included in the bankruptcy estate for purposes of the chapter 7 bankruptcy proceedings.

On October 3, 2013, a circuit court judge denied plaintiff's motion to enforce the judgment of divorce as to defendant's unpaid obligations. The judge, relying on Marshall v Marshall, 135 Mich App 702, 712-713; 355 NW2d 661 (1984), found that the "incorporated but not merged" language limited plaintiff's remedies to an action on the contract, i.e., the settlement agreement, and not by way of a motion to enforce the divorce judgment. We note that following the circuit court judge's ruling, this Court issued Peabody v DiMeglio, 306 Mich App 397, 407; 856 NW2d 245 (2014), which construed and analyzed Marshall, and determined that the language at issue evidenced an intent "to make the agreement enforceable both as a court order and as an ordinary contract." (Emphasis added.) By the time Peabody was released, plaintiff had already filed this original civil action in the trial court, alleging counts sounding in breach of contract, unjust enrichment, and promissory estoppel.

In May 2014, defendant filed a motion for summary disposition, contending, in part, that plaintiff's action was time-barred by the statute of limitations or, in the alternative, by the equitable doctrine of laches. Defendant further argued that any obligations to pay under the settlement agreement were discharged in the bankruptcy proceedings. Defendant, anticipating plaintiff's argument that such obligations attendant to divorce actions are not dischargeable in bankruptcy, maintained that, under 11 USC 523, there were two separate exceptions to nondischargeability, i.e.,when the debtor proved an inability to pay the debt or when a discharge would benefit the debtor more than it would harm the debtor's former spouse. According to defendant, minimally there were genuine issues of material fact with respect to both of these exceptions. And, regardless, these questions were within the exclusive province and jurisdiction of the bankruptcy court. In response, plaintiff argued that her action was not time-barred, either under the statute of limitations or the doctrine of laches, that the nature of the debts as divorce-related obligations rendered them nondischargeable in bankruptcy under 11 USC 523, and that the trial court had jurisdiction to decide plaintiff's lawsuit.

On June 2, 2014, the trial court entertained defendant's motion for summary disposition and took the matter under advisement. On June 4, 2014, the trial court entered an order denying defendant's motion for summary disposition and granting summary disposition in favor of plaintiff under MCR 2.116(I)(2), "for the reasons stated on the record at an opinion hearing on . . . June 4, 2014[.]" We have not been provided a transcript of any "opinion hearing" held on June 4, 2014; therefore, we lack a direct record of the reasoning behind the trial court's ruling. Plaintiff subsequently moved for entry of judgment, and a hearing on the motion was held on September 29, 2014. At the hearing, the trial court did, at times, make reference to its summary disposition ruling. The trial court stated its belief that the debts owed by defendant were not dischargeable in the bankruptcy proceedings. The trial court concluded that plaintiff did not have a duty to mitigate her damages by becoming involved in the bankruptcy case or by...