Taylor v. Taylor (In re Taylor)

• Decision Date: 05 September 2012
• Docket Number: Adversary No. 11–01020.,NM–11–107.,Bankruptcy No. 10–15832.,BAP Nos. NM–11–103
• Parties: In re Eloisa Maria TAYLOR, Debtor. Matthew E. Taylor, Plaintiff–Appellee–Cross–Appellant, v. Eloisa Maria Taylor, Defendant–Appellant–Cross–Appellee.
• Court: U.S. Bankruptcy Appellate Panel, Tenth Circuit

478 B.R. 419

In re Eloisa Maria TAYLOR, Debtor.

Matthew E. Taylor, Plaintiff–Appellee–Cross–Appellant,

v.Eloisa Maria Taylor, Defendant–Appellant–Cross–Appellee.

BAP Nos. NM–11–103, NM–11–107.

Bankruptcy No. 10–15832.

Adversary No. 11–01020.

United States Bankruptcy Appellate Panel of the Tenth Circuit.

Sept. 5, 2012.

Karl F. Kalm of Kalm Law Firm, P.C., Albuquerque, NM, for Defendant–Appellant–Cross–Appellee.

Bonnie B. Gandarilla (George M. Moore with her on the brief) of Moore, Berkson & Gandarilla, P.C., Albuquerque, NM, for Plaintiff–Appellee–Cross–Appellant.

Before NUGENT, KARLIN, and HALL^*, Bankruptcy Judges.

NUGENT, Bankruptcy Judge.

A debt owed by a divorced debtor to her former spouse that is either incurred for spousal support or incurred “in connection with a divorce decree” is excepted from the debtor's Chapter 7 discharge by 11 U.S.C. § 523(a)(5) or (a)(15).¹ These appeals turn on whether a non-debtor spouse's judgment against a debtor for an overpayment of spousal support may be characterized as a domestic support obligation or as one incurred in connection with a divorce decree. We agree with the bankruptcy court that the judgment received by appellee Matthew Taylor against the appellant Eloisa Taylor for the overpayment of support was a debt incurred in connection with a separation agreement, was not a domestic support obligation, and that it should be excepted from Eloisa's discharge. Matthew's allegations that the debt amounted to a domestic support obligation were properly dismissed. We further conclude that the fee-shifting provisions in the parties' Marital Settlement Agreement do not support either the bankruptcy court or this court allowing Matthew's claim for attorneys' fees and costs incurred in prosecuting the adversary proceeding below or this appeal.

I. Factual Background

Matthew and Eloisa Taylor divorced in Virginia in 2005. The parties entered into an extensive Marital Settlement Agreement. In that agreement, they agreed to submit the matter of spousal support to the domestic court. That court ordered Matthew to pay Eloisa spousal support for 10 years or until she remarried.² When Matthew learned that Eloisa was living with another man “in a relationship analogous to marriage,” he asked the Virginia domestic court to terminate his support obligation and to order Eloisa to refund any support she had received from him while cohabiting.³ After a trial, the Virginia court terminated the support order and directed Eloisa to repay Matthew $40,660.59. She was also assessed Matthew's attorneys' fees in the amount of $10,000. Eloisa filed this Chapter 7 bankruptcy case in 2010, prompting Matthew to file an adversary proceeding to except the overpaid support and attorneys' fees (collectively the “Debt”) from her discharge. He alleged that the Debt had been incurred through fraud under § 523(a)(2), that it was a domestic support obligation (“DSO”) excepted from discharge by § 523(a)(5), or that it was incurred in connection with a divorce decree and therefore excepted from discharge by § 523(a)(15). He also requested an award for attorneys' fees and costs in bringing the adversary and that any such award be excepted from discharge as well.

Eloisa moved to dismiss all three of Matthew's claims, but the bankruptcy court only dismissed the § 523(a)(2) fraud count and the § 523(a)(5) DSO count.⁴ Then each party moved for summary judgment on the § 523(a)(15) claim. Matthew'smotion also sought an award for attorneys' fees and costs incurred in enforcing the Debt in bankruptcy. The bankruptcy court granted Matthew summary judgment excepting the debt from discharge under § 523(a)(15), but omitted to address the attorneys' fees issue.

Eloisa appeals from the summary judgment order against her, and Matthew appeals from the dismissal of the § 523(a)(5) count and the bankruptcy court's failure to grant him attorneys' fees in connection with the summary judgment motion.

II. Appellate Jurisdiction and Standard of Review

We have jurisdiction of these appeals. Eloisa filed a timely notice of appeal from the summary judgment order, and Matthew filed a timely cross-appeal of the order dismissing his (a)(5) claim and the summary judgment order. ⁵ Taken together, the dismissal order and the summary judgment order, followed by the entry of judgment, disposed of all of the claims in the adversary complaint and constitute a final order for purposes of appeal, ⁶ even though the bankruptcy court did not directly grant or deny Matthew's claim for attorneys' fees and costs.⁷ Neither party elected to have these appeals heard by the United States District Court for the District of New Mexico.⁸

We review the bankruptcy court's dismissal of a claim for failure to state a claim de novo.⁹ Likewise, we review the bankruptcy court's determination that the spousal-support-overpayment debt arose in connection with a divorce decree pursuant to § 523(a)(15)de novo.¹⁰ An award of attorneys' fees is reviewed for abuse of discretion, but any statutory interpretation or other legal analysis underlyingthe trial court's decision concerning attorneys' fees is reviewed de novo.¹¹

III. DiscussionA. The overpayment debt is not support and is not protected by § 523(a)(5).

Because § 523(a)(15) excepts from discharge certain debts “not of the kind described in [§ 523(a)(5)],” and because Matthew appealed from the bankruptcy court's order dismissing his § 523(a)(5) count, we should first determine whether Eloisa's debt to Matthew is in the nature of domestic support. On cross-appeal, Matthew argues that the bankruptcy court erroneously held that “[Mr. Taylor] cannot solely rely on the original character of the debt owed by him to his former spouse to state a claim that a debt owed to him by his former spouse for overpayment of spousal support is nondischargeable [under § 523(a)(5)].” ¹² Matthew asserts that this holding violates Tenth Circuit precedent in Sylvester v. Sylvester, which held that courts should look to the parties' respective needs for support at the time of the entry of the domestic support order, not their present needs or the “practical effect” of the discharge on a spouse's ability to sustain those needs. ¹³

Matthew argues instead that debts arising from the overpayment of support retain their character as support whether or not the beneficiaries of those debts need support. He relies on two bankruptcy court cases from other circuits, Ratliff and Baker.¹⁴ But neither Ratliff nor Baker is like this case. Ratliff deals with determining whether a Chapter 13 debtor's obligation to a governmental unit for food stamp overpayment is a domestic support obligation that is excepted from discharge under § 523(a)(5). The Ratliff court correctly concluded that, given the expanded scope of the DSO definition in § 101(14A)(A)(ii), domestic support obligations may be owed to governmental units and, accordingly, those debts are excepted from discharge by § 523(a)(5).¹⁵ As Matthew is not a governmental unit, the rule in Ratliff gives him no help on cross-appeal.

Neither does Baker. There, the bankruptcy court for the Northern District of Ohio followed Sixth Circuit authority and Ohio law to find that a creditor-father's overpayments of support to the debtor-mother that resulted from an erroneous administrative garnishment of his wages were support when they were made and that equitable principles rendered the obligation to repay them not dischargeable under § 523(a)(5).¹⁶ The Baker court concluded that because the overpayments were made pursuant to the original child support order, the father was required to make them and the overpayments “fall within the exception to discharge.” ¹⁷ The Baker court relied on Ohio law that “provides that an overpayment of child support still retains its character as a support obligation.” ¹⁸ We are aware of no such New Mexico authority and we are not bound by Baker. Rather we hew to long-time Tenth Circuit precedent that guides how we and our sister bankruptcy courts determine when a marital obligation is support for § 523(a)(5) purposes.¹⁹

The bankruptcy court's decision is well-reasoned and consistent with Tenth Circuit law. Section 523(a)(5) provides that debts for domestic support obligations are nondischargeable in bankruptcy. Section 101(14A) defines “domestic support obligation” as

a debt that accrues before, on, or after the date of the order for relief in a case under this title, including interest that accrues on that debt as provided under applicable nonbankruptcy law notwithstanding any other provision of this title, 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

(ii) a governmental unit;

(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;

(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;

(ii) an order of a court of record; or

(iii) a determination made in accordance with applicable nonbankruptcy law by a governmental unit; and

(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.²⁰

The distilled essence of § 101(14A) defines a domestic support obligation as “a debt [ ] that is in the nature of [ ] support [ ] of such [ ] former spouse [ ].” In other words, as the bankruptcy court held, the Debt must be in the nature of support for Matthew to be excepted from Eloisa's discharge under § 523(a)(5).

I...