Webber v. Proffitt (In re Webber), CASE NO. 15–70705

• Decision Date: 02 May 2016
• Docket Number: CASE NO. 15–70705
• Citation: 579 B.R. 374
• Parties: IN RE: Todd Anthony WEBBER, Debtor. Todd Anthony Webber, Movant, v. Tracy Lynne Proffitt, Respondent.
• Court: U.S. Bankruptcy Court — Western District of Virginia

579 B.R. 374

IN RE: Todd Anthony WEBBER, Debtor.

Todd Anthony Webber, Movant,

v.Tracy Lynne Proffitt, Respondent.

CASE NO. 15–70705

United States Bankruptcy Court, W.D. Virginia, Roanoke Division.

Signed May 2, 2016

Richard Daniel Scott, Law Office of Richard D. Scott, Roanoke, VA, for Debtor.

MEMORANDUM OPINION

Objection to Claim No. 7 (Docket No. 63)

PAUL M. BLACK, UNITED STATES BANKRUPTCY JUDGE

This matter comes before the Court on the Debtor's Objection to Claim No. 7 of Tracy Lynne Proffitt ("Ms. Proffitt") in the amount of $22,112.00 (the "Claim Objection") and Ms. Proffitt's Response thereto. On April 1, the Court held a hearing on the Claim Objection. The Debtor; counsel for the Debtor; Ms. Proffitt; counsel for Ms. Proffitt; the Trustee; and Ms. Proffitt's divorce attorney, Stephen M. Maddy, Esquire, appeared at the hearing. After hearing argument from counsel and testimony from Ms. Proffitt and Mr. Maddy, the Court took the matter under advisement and allowed the parties additional time to file supplemental briefs in support of their positions. The parties have filed their respective briefs and the matter is ready for decision. For the reasons set forth below, the Court will sustain the Debtor's Objection to Claim No. 7 and disallow the claim in its entirety.

STATEMENT OF THE CASE

The Debtor and Ms. Proffitt divorced on November 24, 2014 by the entry of a Final Decree of Divorce A Vinculo Matrimonii in the Circuit Court of Franklin County, Virginia (the "Divorce Decree").¹ Claim No. 7–1, at 4. Paragraph 2 of the Divorce Decree provides the following:

That defendant has further indicated his desire to be awarded the parties' former marital residence located at 165 St. Augustine Road, Wirtz, Virginia 24184, the Court, finding that said property is burdened with debt in excess of its value, does further ADJUDGE, ORDER and DECREE that defendant shall have nine months from the date of the entry of this Order to refinance the current obligation secured by the aforesaid residence and that at the time of such refinance, plaintiff shall convey all of her right, title and interest in and to said property to defendant. In the event such refinance has not been accomplished, the parties shall list said property with a realtor at a price mutually agreed upon. In the event that the parties are unable to agree on a price, said price shall be determined by Richard Varney, a certified real estate appraiser, who has been agreed upon by the parties in open court to be an appropriate person to set said evaluation. In all events, the parties shall, unless otherwise agreed, be required, after said listing, to accept any offer of $225,000 or more once the same is listed for sale. Defendant shall have the sole and exclusive right to occupy said property and shall further maintain the property and pay all costs associated with his occupancy thereof, including, but not limited to, the mortgage, taxes, insurance and utilities.

Id . at 6. The Divorce Decree continues,

UPON FURTHER CONSIDERATION WHEREOF, the Court having considered plaintiff's motion for an award of spousal support and finding that while she is in need of such support, that the defendant is totally incapable of paying such support given his income and the outstanding marital and business obligations assumed by him. Accordingly, the Court having further considered all of the factors set forth in Section 20–107.1 of the 1950 Code of Virginia, does ADJUDGE, ORDER and DECREE that the plaintiff's right to receive support from the defendant is reserved hereby for a period of six (6) years from the date of the entry of this Order.

Id . at 7.

On May 20, 2015, the Debtor filed a voluntary petition under Chapter 7 of the Bankruptcy Code along with the required schedules. Schedule A lists a one-half interest in real property located at 165 Saint Augustine Road, Wirtz, Virginia 24184 (the "Property"), owned as tenants in common.² This schedule also lists a valuation of $226,600.00 based on a 2012 Franklin County tax assessment, the most recent assessment to date. Schedule A, Docket No. 1, at 8. On December 22, 2015, the Debtor's bankruptcy case was converted to one under Chapter 13 of the Bankruptcy Code. Docket No. 54. Ms. Proffitt subsequently filed a proof of claim in the amount of $22,112.00, listing a priority unsecured debt due to a domestic support obligation under 11 U.S.C. § 507(a)(1)(A) or (B) in an amount "[t]o be determined by Circuit Court." Claim No. 7–1, at 2–3.

On February 24, 2016, the Debtor filed the Claim Objection, denying liability to Ms. Proffitt for any amount. In the Claim Objection, the Debtor asserts (1) that Ms. Proffitt has based her claim on the Debtor's "failure to obey order of Franklin County Circuit Court/Divorce," but fails to provide any explanation of what alleged violation has taken place; (2) that Ms. Proffitt fails to cite any provision in the Divorce Decree that could be characterized as a "domestic support obligation"; (3) that the Decree explicitly declines to award Ms. Proffitt any spousal support; (4) that although the Decree leaves open the question of an award of spousal support for a 6–year period, the Proof of Claim offers nothing to indicate a subsequent order was issued; and (5) Ms. Proffitt fails to itemize her calculation of $22,112.00.

Ms. Proffitt thereafter filed her Response, asserting (1) that the Court should look beyond the four corners of the Decree; (2) that the obligation to pay a pre-existing marital debt owed to a third party embodied in the Decree is a debt "to a former spouse" that is excepted from discharge by Section 523(a)(15); (3) that the claim is entitled to priority treatment under Section 507(a)(1)(A) or (B) because the Debtor is not making Note payments yet continues to live in the home for "free"; (4) that the amount of the claim can be calculated by adding all of the Note payments the Debtor failed to tender following entry of the Decree; (5) that even if a property settlement obligation is discharged, the discharge is a change in circumstances warranting an increase in separate alimony obligation; (6) that a bankruptcy court may modify the stay for cause to allow the state court to determine domestic issues, including determining whether the award is nondischargable support under Section 523(a)(5); and (7) that a portion of the claim should be allowed as an administrative claim pursuant to Section 503 for the reasonable rental value of occupying the home.

CONCLUSIONS OF LAW

This Court has jurisdiction of this matter by virtue of the provisions of 28 U.S.C. §§ 1334(a) and 157(a) and the delegation made to this Court by Order from the District Court on December 6, 1994, and Rule 3 of the Local Rules of the United States District Court for the Western District of Virginia. This Court further concludes that this matter is a "core" bankruptcy proceeding within the meaning of 28 U.S.C. § 157(b)(2)(A), (B), (I) and (O).

I. Definition of a Domestic Support Obligation, Burden of Proof, and the Four–Factor Test For Determining "In the Nature of Alimony, Maintenance, or Support"

Section 507(a)(1)(A) and (B) of the Bankruptcy Code provides for priority treatment for "domestic support obligations" owed to a former spouse. 11 U.S.C. § 507(a)(1)(A) & (B). Section 101(14A) of the Bankruptcy Code defines "domestic support obligation" as

a debt that accrues before, on, or after the date of the order for relief in a [bankruptcy case] that is–

(A) owed to or recoverable by

(i) a ... former spouse ...;

(B) in the nature of alimony, maintenance, or support ... without regard to whether such debt is expressly so designated;

(C) established ... before, on, or after the date of the order for relief in a [bankruptcy case] 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....

11 U.S.C. § 101(14A).

The claimant, as the party seeking priority treatment, has the burden of persuading this Court that her obligation satisfies the requirements of 11 U.S.C. § 101(14A). See In re Ludwig, 502 B.R. 466, 468 (Bankr.W.D.Va.2013) (citing In re Harford Sands Inc., 372 F.3d 637, 640 (4th Cir. 2004) ; In re Austin, 271 B.R. 97, 105 (Bankr.E.D.Va.2001) ).³ In determining whether the claimant has satisfied her burden, "the critical question the Court must answer is whether the parties intended the obligation as alimony, support, or maintenance at the time the separation agreement was entered." Id. at 468–69 (citing Tilley v. Jessee, 789 F.2d 1074, 1078 n.4 (4th Cir. 1986) ; In re Monsour, 372 B.R. 272, 281 (Bankr.W.D.Va.2007) ; In re Austin, 271 B.R. at 105 ). If the parties intended the obligation to be a mere division of property, it is not a domestic support obligation. Id. at 469. Moreover, where an agreement between the parties does not provide clear evidence of intent, a bankruptcy court must "look[ ] to extrinsic circumstances to determine the character of the obligation." In re Yeates, 807 F.2d 874, 879 (10th Cir. 1986).

The Court considers the following four factors in determining whether an obligation is "in the nature of alimony, maintenance, or support," and thus a "domestic support obligation" to be given priority treatment under the Code: "(1) the language and substance of the agreement; (2) the relative financial position of the parties when they entered the agreement; (3) the function of the obligation within the agreement; and (4) evidence of overbearing at the time of the agreement." Id. (citing Austin, 271 B.R. at 106 ; Nicolae v. Mirea (In re Mirea), No. 11-11266-BFK, 2012 WL 3042239, 2012 Bankr.LEXIS 3391 (Bankr.E.D.Va. July 25, 2012) ; Monsour, 372 B.R. at 281 ). Because the parties provided no evidence of a separation agreement, the Court must construe the obligations as set forth in the Divorce Decree.

II. The Divorce Decree Did Not Create...