Sternberg, In re, 95-15414

Decision Date05 June 1996
Docket NumberNo. 95-15414,95-15414
PartiesBankr. L. Rep. P 76,999, 96 Cal. Daily Op. Serv. 4015, 96 Daily Journal D.A.R. 6506 In re Alan J. STERNBERG, Debtor. Amy R. FRIEDKIN, formerly, Amy R. Sternberg, Plaintiff-Appellee, v. Alan J. STERNBERG, Defendant-Appellant.
CourtU.S. Court of Appeals — Ninth Circuit

Joel K. Belway, San Rafael, California, for defendant-appellant.

Howard D. Neal, Neal & Associates, Oakland, California, for plaintiff-appellee.

Appeal from the United States District Court for the Northern District of California D. Lowell Jensen, District Judge, Presiding, D.C. No. CV-94-03392.

Before: ALARCON, BEEZER, and RYMER, Circuit Judges.

ALARCON, Circuit Judge:

Alan J. Sternberg ("Sternberg") is a debtor in Chapter 11 bankruptcy. Amy R. Friedkin ("Friedkin"), Sternberg's former spouse, filed a complaint in Sternberg's Chapter 11 case which sought a determination that certain monthly sums owed to her by Sternberg were spousal support payments and thus nondischargeable under 11 U.S.C § 523(a)(5). The bankruptcy court determined that the monthly payments were intended to be spousal support and entered judgment in favor of Friedkin. The district court affirmed the judgment of the bankruptcy court. In his appeal before this court, Sternberg contends that the bankruptcy court erred by: (1) concluding that the monthly obligations were for spousal support instead of payments on a division of marital property; 1 (2) failing to award prejudgment interest on Sternberg's setoff claim; and (3) excluding evidence of Friedkin's current financial circumstances. Because we conclude that the bankruptcy court did not abuse its discretion, we affirm the order of the district court.

I

Friedkin and Sternberg were married on January 1, 1968. After the Sternberg's second child was born in 1971, Friedkin did not work outside the home except for a two-month period of employment at the Jewish Federation. Friedkin and Sternberg separated in 1985 and Friedkin filed for a divorce in the Superior Court of California in Contra Costa County. Pending resolution of the divorce proceeding, the state court entered an order on April 15, 1996 which awarded Friedkin temporary spousal support in the amount of $8,640 per month and temporary child support in the amount of $5,360 per month.

After they separated, Friedkin and Sternberg began negotiating a "Marital Settlement Agreement" (the "Settlement Agreement"). At the time of these negotiations, Friedkin had no independent source of income. Friedkin testified at the bankruptcy trial that when she did not receive the support payments, she had to borrow money from family and friends. In contrast, Sternberg testified that in 1986 he earned a salary of approximately $100,000 a year and derived additional income from various real estate investment partnerships. While neither party clearly sets forth the extent of Sternberg's investment income, Sternberg testified that he had assets worth between seven and eight million dollars and that the cash flow from the real estate partnerships allowed the Sternbergs to spend approximately $400,000 on home renovations in 1985.

After approximately a year of negotiations, Friedkin and Sternberg entered into the Settlement Agreement on September 11, 1986. Both parties initialed each of the 38 pages of the Settlement Agreement. The Settlement Agreement contains a section entitled "SPOUSAL SUPPORT" and a section entitled "DIVISION OF PROPERTY."

The DIVISION OF PROPERTY section stated that it was the "general intention of the parties" that Sternberg "receive all of the marital estate ... excepting therefrom only the real property and family residence ... together with the sum of $2,000,000...." The Settlement Agreement provided that Sternberg was to pay Friedkin $2,000,000 on or before March 1, 1987. The Settlement Agreement also provided for Friedkin to transfer all of her interest in the couple's real estate partnerships/investments to Sternberg. Similarly, Sternberg was required to transfer his interest in the couple's residence and an adjacent lot to Friedkin. Sternberg had a seven-year right of first refusal to purchase the residence and lot if Friedkin elected to sell these properties.

The SPOUSAL SUPPORT portion of the Settlement Agreement provided for Sternberg to pay Friedkin "interim spousal support payments" of $8,000 per month from June 1986 until January 1987. If Sternberg made the $2,000,000 payment on or before March 1, 1987, Sternberg's monthly payment obligations would cease. Sternberg's $2,000,000 obligation would be reduced by each of the $8,000 monthly payments he had made to Friedkin. If Sternberg failed to make the $2,000,000 payment by March 1, 1987, however, he would not receive any credit for payments made. In this event, the Settlement Agreement provided that Sternberg would commence "additional interim spousal support payments [in the] sum of $12,000 per month ... until the $2,000,000 payment is made...." The $12,000 monthly payments were not deductible against the $2,000,000 payment. The $12,000 monthly payments were to survive Friedkin's remarriage and were not to be taxable to Friedkin. Once Sternberg paid the $2,000,000, Friedkin's right to spousal support would "be forever extinguished." The Settlement Agreement was incorporated into the judgment for dissolution by the state court on October 22, 1986.

Sternberg did not pay Friedkin the $2,000,000 on or before March 1, 1987. Friedkin testified that Sternberg made the required monthly payments only "sporadically." In March or April of 1989, Friedkin sold the residence and adjacent lot for a total of $1,570,000. She did not give Sternberg notice of her intention to sell. Under the Settlement Agreement, Sternberg had the right to purchase the property for $1,000,000. On May 4, 1989, Sternberg and Friedkin entered into a stipulation to resolve the pending disputes over alleged defaults of the Settlement Agreement. The stipulation provided for Sternberg to pay Friedkin $255,000 immediately and $125,000 on May 4, 1990. If Sternberg failed to make the $125,000 payment on May 4, 1990, the parties agreed that "all of the terms and conditions of the [Settlement Agreement] shall be reinstated...." The stipulation also provided that "[u]nder no circumstances whatsoever shall [Sternberg]'s right of first refusal ... be reinstated in any fashion." Sternberg failed to make the $125,000 payment on or before May 4, 1990.

In 1992, Sternberg filed a petition for relief under Chapter 11 of the Bankruptcy Code. On January 21, 1993, Friedkin filed a complaint in Sternberg's Chapter 11 bankruptcy case in which she sought a determination that Sternberg's monthly obligations under the Settlement Agreement were for spousal support and thus nondischargeable under 11 U.S.C. § 523(a)(5).

On October 12, 1993, after conducting a trial, the bankruptcy court held that the $8,000 monthly payments were property settlement payments. The bankruptcy court also ruled, however, that the $12,000 monthly payments were for spousal support and were thus nondischargeable. The bankruptcy court further held that Sternberg was entitled to an offset for Friedkin's breach of Sternberg's right of first refusal. 2

On May 9, 1993, the bankruptcy court entered an "Amended Judgment After Trial of Adversary Proceeding" which stated that Sternberg's support obligations were nondischargeable. The bankruptcy court found that Sternberg was entitled to an offset of $570,000 and awarded Friedkin a net judgment in the amount of $230,198.07 plus costs and reasonable attorney's fees. Except for an award of interest from April 6, 1989 to May 4, 1989 (the interim period between Friedkin's breach of the Settlement Agreement and the parties' execution of the stipulation) Sternberg was not awarded prejudgment interest. Sternberg appealed from the entry of this judgment to the district court. The district court entered an order affirming the judgment of the bankruptcy court. Sternberg timely appeals to this court.

II

We independently review the bankruptcy court's decision without deference to the district court's conclusions. In re Weisman, 5 F.3d 417, 419 (9th Cir.1993). This court thus applies the same standard of review employed by the district court. In re Siragusa, 27 F.3d 406, 407 (9th Cir.1994).

The right to a discharge is generally left to the sound discretion of the bankruptcy court. In re Cox, 904 F.2d 1399, 1401 (9th Cir.1990) (citing Shaver v. Shaver, 736 F.2d 1314, 1316 (9th Cir.1984)). A bankruptcy court's determination of nondischargeability is thus reviewed on appeal for "gross abuse of discretion." 3 Id. (quoting Shaver 736 F.2d at 1316). A trial court's decision whether to award prejudgment interest is reviewed for abuse of discretion. In re Acequia, Inc., 34 F.3d 800, 818 (9th Cir.1994).

A trial court may abuse its discretion in several ways. A trial court abuses its discretion if it fails to apply the correct law or if it bases its decision on a clearly erroneous finding of a material fact. Cox, 904 F.2d at 1401; Engleson v. Burlington N. R.R. Co., 972 F.2d 1038, 1043 (9th Cir.1992). A trial court also abuses its discretion if it applies the correct law to facts which are not clearly erroneous but rules in an irrational manner. Id., 972 F.2d at 1043.

III
A

Section 523(a)(5) of the Bankruptcy Code provides that a debt owed "to a spouse, former spouse, or child of the debtor, for alimony to, maintenance for, or support of such spouse or child, in connection with a separation agreement" is not dischargeable. 11 U.S.C. § 523(a)(5). This section represents a departure from the general policy of giving a debtor a "fresh start" following his or her bankruptcy and instead "enforces an overriding public policy favoring the enforcement of familial obligations." Shaver, 736 F.2d at 1315-16. In contrast, until section 523 was amended in 1994, property...

To continue reading

Request your trial
95 cases
  • In re Beverly
    • United States
    • Bankruptcy Appellate Panels. U.S. Bankruptcy Appellate Panel, Ninth Circuit
    • July 24, 2007
    ...87 F.3d 311, 314, as amended, 98 F.3d 1169 (9th Cir.1996) (§ 727 reviewed for abuse of discretion), and Friedkin v. Sternberg (In re Sternberg), 85 F.3d 1400, 1404-05 (9th Cir. 1996) (same); First Beverly Bank v. Adeeb (In re Adeeb), 787 F.2d 1339, 1342 (9th Cir.1986) (§ 727 finding of tran......
  • In re Hutchison
    • United States
    • United States Bankruptcy Courts. Tenth Circuit. U.S. Bankruptcy Court — Eastern District of Michigan
    • December 7, 2001
    ...obligee's death, remarriage, or eligibility for Social Security benefits" is inconsistent with a support obligation); In re Sternberg, 85 F.3d 1400, 1405 (9th Cir.1996) (implying that a monetary obligation which calls for a lump sum payment rather than installment payments is inconsistent w......
  • In re Kriss
    • United States
    • United States Bankruptcy Courts. Second Circuit. U.S. Bankruptcy Court — Southern District of New York
    • February 26, 1998
    ...the nature of support under § 523(a)(5) even if it is not considered `support' under state law"); accord Friedkin v. Sternberg (In re Sternberg), 85 F.3d 1400, 1405 (9th Cir. 1996); In re Harrell, 754 F.2d 902, 904-05 (11th Cir.1985); Petoske v. Petoske (In re Petoske), 16 B.R. 412, 413 (Ba......
  • In re Johnson
    • United States
    • United States Bankruptcy Courts. First Circuit. U.S. Bankruptcy Court — District of Massachusetts
    • March 21, 2011
    ...debt); Tilley v. Jessee, 789 F.2d 1074, 1077 (4th Cir.1986) (same); In re Kline, 65 F.3d 749, 751 (8th Cir.1995) (same); In re Sternberg, 85 F.3d 1400, 1405 (9th Cir.1996) (same); In re Miller, 55 F.3d 1487, 1489 (10th Cir.1995), petition for cert. filed sub nom., Miller v. Gentry, 516 U.S.......
  • Request a trial to view additional results

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT