Wisconsin Dept. of Workforce Dev. V. Ratliff
| Decision Date | 04 June 2008 |
| Docket Number | Case No. 07-C-980.,Bankruptcy No. 07-22653.,Adversary No. 2007-02161. |
| Citation | 390 B.R. 607 |
| Parties | WISCONSIN DEPARTMENT OF WORKFORCE DEVELOPMENT, Creditor-Appellant, v. Rose M. RATLIFF, Debtor-Appellee. |
| Court | U.S. District Court — Eastern District of Wisconsin |
William H. Ramsey, Wisconsin Dept. of Justice, Office of Attorney General, Madison, WI, for appellant.
Michael J. Watton, Watton Law Group, Milwaukee, WI, for appellee.
Mary B. Grossman, U.S. Dept. of Justice, Office of Chapter 13 Trustee, Milwaukee, WI, trustee.
David Walter Asbach, U.S. Dept. of Justice, Office of Trustee, Milwaukee, WI, United States Trustee.
DECISION AND ORDER
The Creditor-Appellant, Wisconsin Department of Workforce Development, ("Department") appeals the September 26, 2007, bankruptcy court order disallowing priority status for the Department's $17,075.35 claim for food stamp overpayments. The Department's claim arises from its determination that the Debtor, Rose M. Ratliff ("Ratliff'), received food stamp overpayments from May 2002 through December 31, 2006, due to her failure to report the presence of her ex-husband in her household during that time period.
The Department appeals from a final order of the bankruptcy court in a core proceeding under 28 U.S.C. § 157(b)(2)(B). Pursuant to 28 U.S.C. § 158(a)(1), this Court has jurisdiction to hear this appeal. The appeal is addressed in this Decision and Order.
In considering a bankruptcy appeal, district courts review a bankruptcy court's findings of fact for clear error and its conclusions of law de novo. In re Midway Airlines, Inc., 383 F.3d 663, 668 (7th Cir.2004).
On March 9, 2007, the Milwaukee County Department of Human Services ("County") issued to Ratliff five separate food stamp overpayment notices totaling $17,066.00 for overpayments of food stamp benefits commencing on May 1, 2002, and ending on December 31, 2006. )1 The County determined that Ratliff had failed to accurately report the members of her household. (Id.)
On March 14, 2007, Ratliff filed a petition for review of that determination pursuant to Wis. ADMIN. CODE [HA] § 3.03. (Docket No. 1, R. 12, Ramsey Aff. ¶ 3, Ex. B 1.) A hearing was held on April 11, 2007. (Id.)
On April 13, 2007, Ratliff filed a voluntary petition for bankruptcy under Chapter 13 of the Bankruptcy Code. (Docket No. 1, R. 4.)
On May 2, 2007, a State of Wisconsin Division of Hearing and Appeals Administrative Law Judge ("ALJ") issued a decision affirming the County's food stamp overpayment determination. (Docket No. 1. R. 12, Ramsey Aff. ¶ 3, Ex. B 1.) The ALJ found that Ratliff and her ex-husband were divorced in 1997, and that Ratliff had received food stamps since prior to May 2002, for herself and her children. (Docket No. 1, R. 12, Ramsey Aff. ¶ 3, Ex. B 1.) The ALJ further found that the County correctly determined that, since at least May 2002, Ratliff's ex-husband had been living with Ratliff and her children. (Docket No. 1, R. 12, Ramsey Aff. ¶ 3, Ex. B 2-3.)
On June 26, 2007, the Department filed an unsecured priority proof of claim for $17,075.352 for the food stamp overpayment, specifying priority as a domestic support obligation under 11 U.S.C. § 507(a)(1)(A) or (B). (Docket No. 1, R. 6, 1.) The proof of claim states that the debt was incurred on April 9, 2007. (Id.)
On August 29, 2007, Ratliff filed an objection to the Department's claim of priority status. (Docket No. 1, R. 11.) Ratliff denied owing the debt, denied that food stamps are in the nature of alimony, maintenance and support, and contended that, based on the Department's claim that the debt was an overpayment and unnecessary, the debt could not be deemed in the nature of support for Ratliff or her dependants. (Id.)
The Department filed a "memorandum in support of finding [the] defendant's food stamp overpayment obligation a domestic support obligation and against finding [the] plaintiff's issuance of a decision on the defendant's appeal a violation of the stay order." (Docket No. 1, R. 12.)
On September 26, 2007, after a hearing, the bankruptcy court issued an order disallowing priority status to the Department's claim and sustaining Ratliff's objection to the claim. (Docket No. 1, R. 13) (In re Ratliff, No. 07-22653-svk, Order Disallowing Priority Status (E.D.Bankr. Sept. 27, 2007)) The bankruptcy court quoted the definition of domestic support obligation set forth in 11 U.S.C. § 101(14A), a new term added by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 ("BAPCPA"), and stated that 11 U.S.C. § 507(a)(1) "suggests that the government cannot collect domestic support obligations unless it is filing a claim on behalf of `a spouse, former spouse, or child of the debtor or of, such child's parent, legal guardian, or responsible relative.'" (Id.) The bankruptcy court held that such language suggests that the term "domestic support obligation" is limited to "debt owed or recoverable by the former spouse of the debtor, in the nature of alimony, maintenance or support established under a separate agreement, divorce decree or property settlement." (Id.) (citing In re O'Brien, 339 B.R. 529 (Bankr.D.Mass. 2006).)
The bankruptcy court determined that the food stamps were provided to Ratliff based on her eligibility for benefits. (Docket No. 1, R. 13, 1.) The bankruptcy court stated that only when the State discovered that Ratliff's husband apparently had been living with her, did the State notify Ratliff that her husband's income should have been included to determine her benefits and calculate that it had overpaid Ratliff about $17,000 in food stamps. (Docket No. 1, R. 13, 1.) The bankruptcy court concluded that the food stamp benefits were not akin to support that the State advanced on behalf of Ratliff to her ex-husband or child. (Docket No. 1, R. 13, 2.) The bankruptcy court queried "if the State did collect the food stamp overpayment as a priority claim to whom would the State distribute those payments under applicable nonbankruptcy law," referring to the final sentence of 11 U.S.C. § 507(a)(1), which states "any payments received by the government on a priority domestic support claim `shall be applied and distributed in accordance with applicable nonbankruptcy law,'" as suggesting that the government would either remit the support to the child or spouse of the debtor or repay, itself for any support it had advanced. (Docket No. 1, R. 13, 1.) As a result, it allowed the Department's claim as a general unsecured claim, not a priority claim. (Docket No. 1, R. 13, 2.)
On October 25, 2007, the bankruptcy court issued an order staying its order disallowing priority status of the claim. (Docket No. 1, R. 17.)
Several statutory provisions are relevant to the issues presented by this appeal. "Domestic support obligation," is defined in Section 101(14A) of Title 11 of the United States Code as follows:
[A] debt that accrues before, on, or after the date of the order for relief in a case under this title,3 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;4
(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.
Section 507(a)(1), which provides for priority treatment of certain "domestic support obligations," states:
a) The following expenses and claims have priority in the following order:
(1) First:
(A) Allowed unsecured claims for domestic support obligations that, as of the date of the filing of the petition in a case under this title, are owed to or recoverable by a spouse, former spouse, or child of the debtor, or such child's parent, legal guardian, or responsible relative, without regard to whether the claim is filed by such person or is filed by a governmental unit on behalf of such person, on the condition that funds received under this paragraph by a governmental unit under this title after the date of the filing of the petition shall be applied and distributed in accordance with applicable nonbankruptcy law.
(B) Subject to claims under subparagraph (A), allowed unsecured claims for domestic support obligations that, as of the date of the filing of the petition, are assigned by a spouse, former spouse, child of the debtor, or such child's parent, legal guardian, or responsible relative to a governmental unit (unless such obligation is assigned voluntarily by the spouse, former spouse, child, parent, legal guardian, or responsible relative of the child for the purpose of collecting the debt) or are owed directly to or recoverable by a governmental unit under applicable nonbankruptcy law, on the condition that funds received under this paragraph by a governmental unit under this title after the date of the filing of the petition be applied and distributed in accordance with applicable...
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