Steele v. Heard

• Decision Date: 04 February 2013
• Docket Number: No. 12–0707–WS–C.,12–0707–WS–C.
• Parties: Oneita STEELE, Appellant, v. Dwayne Laroy HEARD, Appellee.
• Court: U.S. District Court — Southern District of Alabama

487 B.R. 302

Oneita STEELE, Appellant,

v.Dwayne Laroy HEARD, Appellee.

No. 12–0707–WS–C.

United States District Court,

S.D. Alabama,

Northern Division.

Feb. 4, 2013.

Geraldine Turner–Wofford, Selma, AL, for Appellant.

Thomas Randolph Harrold, Randy Harrold, LLC, Selma, AL, for Appellee.

ORDER

WILLIAM H. STEELE, Chief Judge.

This matter comes before the Court on plaintiff/appellant Oneita Steele's Notice of Appeal (doc. 1) pursuant to 28 U.S.C. § 158(a). Steele seeks review of the Bankruptcy Court's determination that her claim for payment of certain benefits from defendant/appellee Dwayne Laroy Heard's pension plan is a debt dischargeable upon completion of Heard's Chapter 13 plan. The appealed-from ruling was manifested in a judgment on August 9, 2012, as memorialized by minute entry on August 10, 2012, and in the ensuing denial of Steele's motion to alter, amend or vacate on August 27, 2012. The appellate briefing process having concluded, this appeal is now ripe for disposition. ¹

I. Bankruptcy Court Proceedings and Rulings from which Appeal is Taken.A. The Adversary Proceeding.

Defendant/appellee Dwayne Laroy Heard commenced Chapter 13 bankruptcy proceedings in the United States Bankruptcy Court for the Southern District of Alabama on or about April 27, 2012. On or about July 13, 2012, plaintiff/appellant Oneita Steele filed an Adversary Proceeding against Heard. In her filing, Steele claimed a right and entitlement to certain pension benefits and distributions accruing to Heard, based on a divorce order requiring Heard to pay over those benefits to her. By contrast, Heard maintained in his bankruptcy schedules that those pension benefits were his property. As framed by the parties and the Bankruptcy Court at the ensuing hearing, the central issues raised in the Adversary Proceeding were (i) whether the subject pension benefits claimed by Steele were in the nature of a property settlement or support, and (ii) whether such benefits were part of Heard's bankruptcy estate (which could then be used to fund Heard's Chapter 13 plan), or outside the bankruptcy estate ( i.e., the sole and separate property of Steele).

The material facts are largely undisputed on appeal. ( See doc. 9, at 10–13; doc. 11, at 4.) In summary, Steele and Heard were married in Illinois in 1983, and divorced in the same state in 1994. At the time of their dissolution, Heard was employed by the City of Chicago's Department of Streets and Sanitation, and was a member of its pension plan (known by the acronym “LABF”). The Judgment for Dissolution of Marriage entered by an Illinois court in September 1994 approved Steele's and Heard's “oral property settlement agreement.” ( See doc. 1, Exh. D.) ² In relevant part, that agreement (as reflected by and incorporated in the September 1994 Judgment) provided that Steele “shall participate in each of the payments received by [Heard] as and for his retirement or pension” utilizing a specified formula. ( Id., ¶ G(9).) ³ If and when Heard received any payment of pension benefits, he was to apply that formula “to determine[ ] and immediately pay to [Steele] the sum equal to” the computed amount. ( Id.) As adopted in the Judgment, the property settlement agreement further stated that “[t]his benefit shall be enforceable by garnishment of [Heard] by [Steele]. In the event municipal pensions become subject to a Qualified Domestic Relations Order (QDRO), [Steele] shall have the right to make application directly to the proper pension board or boards.” ( Id.)

Heard began receiving monthly LABF pension benefits in July 2006; however, he made no payments to Steele in accordance with the terms of the September 1994 Judgment. (Doc. 9, at 11, 13.) More than five years after Heard began receiving these benefits, on November 15, 2011, Steele (who resides in Westmont, Illinois) filed a petition in Illinois state court seeking, among other things, entry of a Qualified Illinois Domestic Relations Order (“QILDRO”) under Illinois law, dividing Heard's governmental pension benefits pursuant to the divorce decree. (Doc. 1, Exh. E.) Essentially, Steele sought an order from the Illinois court that forced Heard to pay her the agreed-upon pension benefits, and/or afforded Steele the ability to obtain payment directly from the LABF. Although Steele couched her petition in “emergency” rhetoric, the Illinois court apparently made no ruling during the next five months. In April 2012 (without the Illinois court having decided Steele's petition), Heard (who now resides in Marion, Alabama) filed his Chapter 13 petition in this district, listing Steele as an unsecured creditor. This Adversary Proceeding followed.

B. The August 9 Hearing and the Bankruptcy Court's Ruling.

Upon the filing of Steele's adversary proceeding, U.S. Bankruptcy Judge Mahoney set the matter for hearing on August 9, 2012. ( See doc. 2.) At that time, the parties stipulated that the challenged benefits are “not subject to a Qualified Domestic Relations [O]rder under ERISA” and that they presently are not (but may become) subject to a QILDRO. (Doc. 2, at 14–15.) ⁴ As the hearing progressed, the Bankruptcy Court received exhibits and heard live testimony from both Steele and Heard.⁵ Steele testified that the parties had agreed at the time of divorce that she would “accept a portion of the pension” in lieu of alimony. (Doc. 2, at 26.) Steele explained that, with respect to the pension benefits that Heard owed her, she “was just under the assumption that they would automatically start, once he did retire.” ( Id. at 28.) And Steele conceded that she is not claiming that Heard owed her alimony, maintenance or support since the time of the divorce. ( Id. at 42.) For his part, Heard testified that he did not understand at the time that he was required to make pension payments to Steele pursuant to the September 1994 Judgment, but that he instead thought that such payments “would automatically go to her” and that it would be “automatically done after we were divorced.” ( Id. at 57–58.) As Heard put it, “I really didn't understand any of this.” ( Id. at 59.)

Specifically with regard to the QILDRO issue, Heard testified that he had not consented and would not consent to the issuance of a QILDRO. ( Id. at 86.) Heard also read certain QILDRO information into the record from an exhibit purportedly from the Laborers' and Retirement Board Employees' Annuity and Benefit Fund of Chicago (“LABF”), and listing an effective date of July 1, 2006. (Doc. 1, Exh. D–3.) ⁶ In particular, Heard read, “If LABF membership started before July 1st, 1999, ... a QILDRO will only be valid if the member signs a consent ... to [issuance] of QILDRO, consent in writing.... [Y]ou must use the specific consent forms obtained from our office....” (Doc. 2, at 94.) ⁷ Heard began working for the City of Chicago, and became a LABF member, in 1976. ( Id. at 62.)

Following this testimony, counsel for both sides were given an opportunity to argue their respective positions. Steele's attorney maintained that “the pension distribution under the dissolution of the marriage created an interest in Ms. Steele as of the time that that decree was entered.” (Doc. 2, at 96.) According to Steele, once that September 1994 Judgment was entered, Heard held those pension benefits for her “in a constructive trust” and “that benefit was no longer his to deal with.” ( Id.) Because the benefit was no longer his, Steele reasoned, “it's not a debt of Mr. Heard's, and with it not being a debt of his, it can't be discharged.” ( Id. at 97.) The crux of Steele's argument was her contention that, even if the pension benefit was deemed to be part of a property settlement, “it still should be found to have vested in her when that decree was signed. And with it not being a debt, it could not be bankrupted.” ( Id. at 100–01.)

Ruling from the bench, Judge Mahoney rejected Steele's contentions. Her oral decision recited the largely uncontested facts, and adjudicated the disputed legal issues as follows: (i) pursuant to the September 1994 Judgment, the pension benefits remained property of Heard's estate because the decree provided that Heard has the obligation to pay the funds over to her, such that “what he owes Ms. Steele is a debt;” (ii) there is no QDRO here, because the parties so stipulated; (iii) there is no QILDRO here, because Heard has not consented to issuance of a QILDRO; (iv) from the plain language of the divorce order, the agreed pension arrangement “is a property settlement;” (v) no constructive trust was formed; and (vi) under the language of the divorce order, “it can't be her property because ... it says it had to come through Mr. Heard,” which “clearly shows it's not self-executing and it was not in her hands.” (Doc. 2, at 117–19.) On that basis, the Bankruptcy Court declared “the debt to be a dischargeable property settlement debt in the case.” ( Id. at 122.) ⁸

II. Analysis.A. Standard of Review.

It is well established that “the district court in reviewing the decision of a bankruptcy court functions as an appellate court.” In re Colortex Industries, Inc., 19 F.3d 1371, 1374 (11th Cir.1994). In that regard, “[t]he district court makes no independent factual findings,” but instead reviews “the bankruptcy court's factual determinations under the ‘clearly erroneous' standard.” Id. “Factual findings are not clearly erroneous unless we are left with the definite and firm conviction that the court erred.” In re Walker, 515 F.3d 1204, 1212 (11th Cir.2008) (citation and internal quotation marks omitted); see also In re Thomas, 883 F.2d 991, 994 (11th Cir.1989) (“clearly erroneous” standard applies to bankruptcy court's findings of fact, whether based on oral or documentary evidence, and “due regard shall be given to the opportunity of the bankruptcy court to judge the credibility of the witnesses”). By contrast, the Bankruptcy Court's conclusionsof law are subject to de novo review. See, e.g., In re Tennyson, ...