Steele v. Wyly (In re Wyly)

• Citation: 525 B.R. 644
• Decision Date: 19 February 2015
• Docket Number: CASE NO. 14–35043–BJH,ADV. PROC. NO. 14–03142–BJH
• Parties: In re: Samuel E. Wyly, Debtor. Torie Steele, Plaintiff, v. Samuel E. Wyly, Defendant.
• Court: United States Bankruptcy Courts. Fifth Circuit. U.S. Bankruptcy Court — Northern District of Texas

525 B.R. 644

In re: Samuel E. Wyly, Debtor.

Torie Steele, Plaintiff

v.Samuel E. Wyly, Defendant.

CASE NO. 14–35043–BJH

ADV. PROC. NO. 14–03142–BJH

United States Bankruptcy Court, N.D. Texas, Dallas Division.

Signed February 19, 2015

Josiah M. Daniel, III, Rebecca Lynn Petereit, Vinson & Elkins, Dallas, TX, for Defendant.

Ernest Leonard, Friedman & Feiger, LLP, Dallas, TX, for Plaintiff.

(Chapter 11)

(Jointly Administered)

RELATED TO DKT. NOS. 9 & 25

MEMORANDUM OPINION AND ORDER

Barbara J. Houser, United States Bankruptcy Judge

Before the Court are cross motions for summary judgment in this adversary proceeding brought by Torie Steele (“Torie ”) against her ex-husband and debtor in this bankruptcy case, Samuel E. Wyly (“Sam ”), seeking a determination that a claim held by Torie against Sam is not dischargeable. Oral argument on both motions was held on February 2, 2015. Both Torie's motion for summary judgment (“Torie's Motion ”) and Sam's cross-motion for summary judgment (“Sam's Cross–Motion ”) are now ripe for ruling. Because this Court concludes that (i) Torie's claim against Sam is in the nature of spousal support, and (ii) Sam has failed to raise a legitimate dispute on an issue of material fact for trial, Torie's Motion will be granted and Sam's Cross–Motion will be denied.

I. BACKGROUND FACTS

The primary relevant facts are set forth in three documents submitted as exhibits in support of Torie's Motion. Sam adopts these exhibits in support of his response to Torie's Motion and in support of Sam's Cross–Motion.

Sam and Torie (then Victoria Lee Wyly) were divorced on June 15, 1991 in California. By that time, both Sam and Torie had achieved some measure of professional success and owned a considerable amount of property. In connection with their divorce, on September 23, 1991, the Superior Court of California, County of Los Angeles (the “Los Angeles Superior Court ”) entered a judgment (the “Divorce Judgment ”) which divided marital property and provided for spousal and child support to be paid by Sam, among other things. Torie's Ex. 1;¹ In re the Marriage of Wyly (Super.Ct.L.A.County, 1991, No. D–226–386). None of the provisions of the Divorce Judgment are directly at issue in this adversary proceeding, but an overview of the Divorce Judgment will be helpful.

The first eleven sections of the Divorce Judgment divided the couple's assets and liabilities. The Divorce Judgment confirmed interests in separate property, Torie's Ex. 1 ¶¶ 1–2, App. 5–9, and divided specific items of community property, id. ¶¶ 3–4, App. 9–13. It also assigned community debts and reconciled claims between Sam, Torie, and the community. Id. ¶¶ 5–8, App. 16–18. After dealing with specific assets and claims, the Divorce Judgment ordered Sam to pay $4,193,105 to Torie “[t]o equalize the division of community property and liabilities” (the “Equalizing Payment ”). Id. ¶ 9, App. 18–19. If any community property was discovered after entry of the Divorce Judgment, it was to be divided equally, id. ¶ 10, App. 19, and any debt not specifically addressed in the Divorce Judgment was declared the responsibility of the party who had incurred it, id. ¶ 11, App. 19–20.

Paragraph 12 of the Divorce Judgment ordered Sam to pay Torie $40,000 per month in spousal support until May 31, 1993. Id. ¶ 12, App. 20–21. On that date, the Los Angeles Superior Court would “lose jurisdiction to order or continue spousal support” barring a prior order extending its jurisdiction to do so. Id. The Divorce Judgment permitted Sam to reduce the monthly payment of $40,000 by the amount of any payments actually received by Torie from Torie Wyly, Inc., but noted the assumption that Torie would receive no such payments. Id. ¶ 12.1, App. 20–21.² However, the Divorce Judgment required Sam to continue making a monthly $60,000 payment to Torie pursuant to the pendent lite support order until Torie received the Equalizing Payment. Id. ¶ 12.2, App. 21.

The remaining sections of the Divorce Judgment deal with child custody, child support, and other matters not relevant to the present dispute.

The obligation at issue here was created two years after the Divorce Judgment became final and resolved a dispute that arose shortly after the entry of the Divorce Judgment. Specifically, on February 5, 1992, Torie filed a Renewed Order to Show Cause in the Los Angeles Superior Court in which she apparently sought a modification of the Divorce Judgment and continuation of spousal support past the May 31, 1993 termination date set forth in the Divorce Judgment, among other things.³ On June 15, 1993, Torie and Sam reached a “full and complete settlement of the issues” raised by Torie's Renewed Order to Show Cause, which settlement was incorporated into an agreed order (the “Order Amending Judgment ”) entered by the Los Angeles Superior Court on July 1, 1993. Torie's Ex. 2, App. 29.

The first substantive provision of the Order Amending Judgment obligated Sam to act as “investment manager and counselor” to Torie for life (the “Investment Provision ”). Id. ¶ 1, App. 30. Specifically, the parties agreed that Torie would give Sam $5,000,000 in capital to invest for her on which he guaranteed a 10% annual return. Id. Through this guaranteed annual return provision, Sam guaranteed that Torie “will receive cash payments from such investments in an aggregate of at least $500,000 per year in investment income, payable in monthly installments ... of not less than $41,666 per month.” Id. If Sam's investment advice or activities generated annual returns in excess of the 10% guaranteed return, Torie agreed that Sam would receive half of the excess, but if his investment advice or activities did not generate a 10% annual return, payable in equal monthly installments of $41,666, Sam was required to make up any shortfall monthly out of his own pocket. In other words, if the investment return in any month was less than $41,666, Sam was required to fund the difference from his own assets. Id. ¶¶ 1–1.1, App. 30. Sam further agreed to “use his best efforts to assure that the guaranteed return of at least 10 percent per annum ... is free and clear of federal and state income or other taxation” to Torie and to provide her with regular statements. Id. ¶¶ 1.2–1.3, App. 30–31. The $5,000,000 of principal remained Torie's property, and Sam was obligated to return it to her promptly if she exercised her option to suspend or terminate the Investment Provision. Id. ¶ 1.4, App. 31–32.

The Order Amending Judgment imposed several other obligations on the parties. For example, Sam was required to cause a house in Malibu that he indirectly owned to be sold to Torie for $2,000,000. Id. ¶ 2, App. 32. Sam was required to make a $400,000 down payment on Torie's behalf, although Torie would be liable to make monthly payments on the remainder of the debt evidencing the purchase price ($1,600,000), with her obligation secured by a deed of trust on the property. Id. Sam was also required to provide health insurance for Torie for life. Id. ¶ 3, App. 33. In addition to providing her with insurance coverage, Sam was obligated to pay all of Torie's medical costs for life to the extent they exceeded 20% of her actual income from the Investment Provision in any calendar year. Id. ¶ 3.2, App. 33–34.

The Order Amending Judgment deleted ¶¶ 12.1 and 12.2 of the Divorce Judgment, which provided for modification of the original $40,000 support award (either up or down) in certain circumstances, and amended ¶ 12 of the Divorce Judgment to require Sam to pay $22,500 in additional spousal support to Torie on June 20, 1993.Id. ¶ 4, App. 34.⁴ And, significantly, the Order Amending Judgment extended the Los Angeles Superior Court's jurisdiction to award additional spousal support to Torie in the event that she failed to receive a 10% return pursuant to the Investment Provision or if Sam refused to return her investment principal upon request. Id. The Order Amending Judgment made no other alterations or references to specific provisions in the Divorce Judgment.

Sam's obligations under the Order Amending Judgment were to “inure to the benefit of [Torie] and her heirs, administrators, executors, successors and assigns, and be a charge against the Estate of [Sam].” Id. ¶ 11, App. 36–37. The remainder of the provisions of the Order Amending Judgment concern issues like fees and notice and are not at issue here.

The Los Angeles Superior Court revisited In re Marriage of Wyly in response to orders to show cause filed by Torie in 2003 and by Sam in 2004. The Los Angeles Superior Court's resolution of those disputes is contained in an Amended and Final Findings/Statement of Decision on Orders to Show Cause Heard at Evidentiary Trial entered on May 23, 2007 (the “2007 Decision ”). Torie's Ex. 3, App. 38. The 2007 Decision resolved claims between Torie and Sam involving the application of the Investment Provision to the complex dealings actually undertaken by the parties after entry of the Order Amending Judgment. Suffice it to say that Torie did not simply place $5,000,000 with Sam for investment during the intervening years as contemplated by the Investment Provision, and it appears that Sam was not actively managing any of Torie's money at the time of the 2007 Decision. Many of the findings contained in the 2007 Decision are irrelevant here, but certain of those findings are instructive, as they concern the intent with which Torie and Sam agreed to the terms of the Order Amending Judgment after the Los Angeles Superior Court heard evidence from the parties over several days.

As the Los Angeles Superior Court explained in the 2007 Decision, the Renewed Order to Show Cause filed by Torie on February 5, 1992 (that was resolved by agreement as set forth in the Order Amending Judgment) sought a determination that “spousal support be continued on [Torie]'s behalf.” Torie's Ex. 3, App. 39–40. In the 2007 Decision, the Los Angeles Superior Court found that the Order Amending Judgment...