D'Agostino v. Genovese ( 1996 )

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
In Re: JOHN J. GENOVESE
Debtor.
A. CHARLES D'AGOSTINO,
No. 95-1984
Plaintiff-Appellee,
v.
JOHN J. GENOVESE,
Defendant-Appellant.
Appeal from the United States District Court
for the Northern District of West Virginia, at Wheeling.
William M. Kidd, Senior District Judge.
(CA-94-95-5, BK-90-30945)
Argued: June 3, 1996
Decided: September 12, 1996
Before MURNAGHAN and WILLIAMS, Circuit Judges, and
MACKENZIE, Senior United States District Judge for the
Eastern District of Virginia, sitting by designation.
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Affirmed by unpublished per curiam opinion.
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COUNSEL
ARGUED: Michael Shawn Santa Barbara, CAMILLETTI, OLLAR
& SANTA BARBARA, Martinsburg, West Virginia, for Appellant.
Daniel T. Booth, MARTIN & SEIBERT, L.C., Martinsburg, West
Virginia, for Appellee. ON BRIEF: Scott A. Ollar, THE LAW
OFFICE OF SCOTT A. OLLAR, Martinsburg, West Virginia, for
Appellant.
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Unpublished opinions are not binding precedent in this circuit. See
Local Rule 36(c).
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OPINION
PER CURIAM:
Plaintiff-appellee Charles D'Agostino represented Michelle Geno-
vese in lengthy divorce and custodial proceedings in New York state
against her ex-husband, defendant-appellant John Genovese. After
seven years, the New York court dismissed the divorce action, but
awarded custody and child support to Michelle Genovese. Following
the New York court's dismissal, John Genovese filed for and received
a divorce in West Virginia.
Subsequently, in a separate proceeding, D'Agostino sought to col-
lect attorney's fees for his representation of Michelle Genovese from
John Genovese. After a trial, where John Genovese was represented
by counsel, but did not appear personally, the New York court
awarded D'Agostino attorney's fees payable by John Genovese as
necessaries for his wife and child's support during the protracted
divorce.
D'Agostino registered his judgment in West Virginia and initiated
enforcement proceedings against John Genovese. John Genovese,
however, filed for bankruptcy under Chapter 7 of the federal Bank-
ruptcy Code in West Virginia. The bankruptcy court found that the
attorney's fee award was dischargeable under the Code. The district
court reversed, finding that the award was nondischargeable because
it was in the nature of nondischargeable alimony, maintenance, and
support under 11 U.S.C. § 523(a)(5). Further, the district court held
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that the New York state court's factual finding that the attorney's fees
were necessary for support of Michelle Genovese and her son was
entitled to deference and was binding upon the federal courts under
the doctrine of collateral estoppel. John Genovese appeals the district
court's ruling. For the following reasons, we affirm.
I
Section 523(a)(5) of the Bankruptcy Code provides that a discharge
from debt "does not discharge an individual debtor from any debt . . .
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, divorce decree or other order of a court
of record." Nondischargeable debt under § 523(a)(5)(B) includes debt
"in the nature of alimony, maintenance, or support."
Whether a debt is in the nature of alimony, maintenance, or support
is a question of Federal Bankruptcy law. Sylvester v. Sylvester, 865
F.2d 1164, 1166 (10th Cir. 1989) (per curiam). Thus, the bankruptcy
court has exclusive jurisdiction to make the legal conclusion as to
whether a debt is dischargeable. Grogan v. Garner, 498 U.S. 279, 289
(1991) (explaining that Congress amended Bankruptcy Act in 1970 to
make nondischargeability a question of federal law independent of the
issue of the validity of the underlying claim).
Under federal law, when an award of attorney's fees as necessaries
is at issue, the dispositive question is whether the court making the
award intended it to be in the nature of support. Matter of Long, 794
F.2d 928, 931 (4th Cir. 1986); Tilley v. Jessee , 789 F.2d 1074, 1078
n.4 (4th Cir. 1986). The New York state court awarded the fees as
necessaries, clearly indicating that they were awarded based on the
"need of the spouse." The New York court stated:
As for the necessaries, the Court finds there was a need of
the spouse, and even when the needs were there the husband
did not comply with valid orders and maneuvered his way
around so that he would not have to pay the various income
and maintenance and support he should have paid. (empha-
sis added).
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The New York state court further found that John Genovese, who
had earned a substantial income, had been dishonest with the court
and depleted himself of every asset possible through the purchase of
boats and the like, in order to avoid paying income and maintenance
to his wife and children. The New York court further noted the dis-
parity in income between Michelle Genovese, who did not work, and
her husband, whose earnings had fluctuated between $43,000 per year
and close to six figures, and the husband's failure to comply with
orders and to pay income and maintenance to his wife and children
that he should have paid. Disparity in earning power is a factor to be
considered when determining whether an award of attorney's fees is
in the nature of alimony, maintenance, and support. In re Joseph, 16
F.3d 86, 88 (5th Cir. 1994).
For all of those reasons, the New York court awarded $42,475.00
in attorney's fees, plus interest and cost, to D'Agostino as necessaries
under a theory of quantum meruit. The judgment was upheld on
appeal. Thus, the bankruptcy court had before it a judgment by a court
of record for attorney's fees intended by the New York court as main-
tenance and support for Michelle Genovese and her son. Under fed-
eral law, therefore, the judgment was nondischargeable under the
Bankruptcy Code.
II
The bankruptcy court, however, reviewed the New York trial tran-
script and orders and determined that the attorney's fees were not in
the nature or alimony, support, or maintenance dischargeable under
§ 523(a)(5). Collateral estoppel prevented the bankruptcy judge from
making that determination.
Under the doctrine of collateral estoppel or issue preclusion, a
judgment debtor may be precluded in bankruptcy proceedings from
relitigating an issue of fact previously decided in a state court.
Garner, 498 U.S. at 284 & 284-85 n.11; In Re McNallen, 62 F.3d
619, 624 (4th Cir. 1995). Thus, despite the bankruptcy court's exclu-
sive jurisdiction to determine dischargeability, it does not need to
redetermine all facts underlying the legal inquiry if they were previ-
ously determined in an earlier lawsuit. Garner , 498 U.S. at 278-79
n.11. In keeping with that principle, the Fourth Circuit bars factual
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findings in state court from being relitigated in federal bankruptcy
proceedings where the requirements of collateral estoppel are met.
Combs v. Richardson, 838 F.2d 112, 114-16 (4th Cir. 1988); In re
Raynor, 922 F.2d 1146, 1148-49 (4th Cir. 1991).
In determining the preclusive effect of the New York court's find-
ings of fact, we "must, as a matter of full faith and credit, apply the
forum state's law of collateral estoppel." In re McNallen, 62 F.3d at
624. The district court did not discuss with specificity the collateral
estoppel requirements it applied. Thus, it did not clarify whether it
applied New York or Fourth Circuit principles of collateral estoppel.
Because there is no material difference between the requirements for
collateral estoppel under New York law versus Fourth Circuit law,
that failure is immaterial. Compare Continental Casualty Co. v.
Rapid-American Corp., 609 N.E.2d 506, 510 (N.Y. 1993) with
Ramsay v. United States Immigration & Naturalization Serv., 14 F.2d
206, 210 (4th Cir. 1994).
New York law requires that an issue be precluded from being reliti-
gated if it is: (1) identical to that litigated previously; and (2) the par-
ties seeking to be estopped had a full and fair opportunity to litigate
the issue. Continental Casualty, 609 N.E.2d at 510. John Genovese
concedes that the elements of collateral estoppel apply, with the
exception of identity of issues litigated. He contends that the issue liti-
gated in the New York proceeding was not identical. He asserts that
the New York court's determination that attorney's fees were among
Michelle Genovese's necessaries is a mere label which is not binding
on this court. In re Brody, 3 F.3d 35, 39 (2d Cir. 1993).
A bankruptcy court is not bound by mere labels applied in state
court. The bankruptcy court must examine the substance of the find-
ing and the intent behind the court making the award. However, a
bankruptcy court is bound by identical sets of facts previously liti-
gated in state court.
We must determine whether the identical issue was actually liti-
gated "with particular care." In re Raynor , 922 F.2d at 1149 (citing
Combs, 838 F.2d at 113). The question of necessaries under New
York law inquires as to whether the fees or services where incurred
for "protection" and "support" and whether the lawsuit on behalf of
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the wife was "rendered reasonable and proper" by the conduct of the
husband. Levine v. Raymond, 3 A.D.2d 36, 38 (N.Y. App. Div. 1956);
see also Weidlich v. Richards, 276 A.D. 383 (N.Y. App. Div. 1950)
(attorney's fees as necessaries are merited where (1) the husband is
at fault; and (2) the wife has a right to a separate living). Under
§ 523(a)(5), the question asked is whether the court making the award
did so in a judicial order and intended the award as maintenance or
support owed to the spouse or child. The New York court's neces-
saries inquiry as to whether the attorney's fees were needed as sup-
port and maintenance and the relative fault of the parties answers
essentially the same factual inquiry the bankruptcy court must make:
did the state court intend the award as support and maintenance?
The bankruptcy court, however, discounted the New York state
court's factual findings. The bankruptcy court stated: "The Court is
unpersuaded by the Westchester County Supreme Court's analysis in
arriving at its conclusion that the debtor's payment of plaintiff's attor-
ney fees would constitute `necessaries' to Mrs. Genovese." The Bank-
ruptcy Court looked to the record in the New York court proceeding
and rejected the factual findings because it perceived them to be
based solely on "the unsubstantiated, self-serving testimony of
[D'Agostino] himself concerning [John Genovese's] net worth." The
Bankruptcy Court further found that "it [was] untenable that no
inquiry was made by the Westchester court into Mrs. Genovese's
need in arriving at its conclusion." The bankruptcy court, therefore,
ignored the factual findings of the state court and determined that
D'Agostino's fees were not necessary as support or maintenance for
Michelle Genovese and her son.
Whether the fees were in the nature of support for Michelle Geno-
vese and her son, as a factual matter, however, was and is entitled to
preclusive effect. Collateral estoppel precludes a separate and inde-
pendent examination by the Bankruptcy Court of the facts as found
by the New York court. Thus, we must treat the attorney's fees
awarded by another court of record as being in the nature of support
and maintenance of Michelle Genovese and her son. The fees, there-
fore, fall under the category of nondischargeable debt.*
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*John Genovese makes two further arguments. First, he contends that
the debt should be discharged because the fees were not imposed in the
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Accordingly, the judgment of the district court is
AFFIRMED.
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divorce proceeding, but rather in a separate proceeding. The statute
states, however, that the nondischargeable debts may be imposed "in
connection with a separation agreement, divorce decree, or other order
of a court of record." Thus, the fact that the award stems from a proceed-
ing separate from the actual divorce proceeding is irrelevant under the
plain terms of the statute. Furthermore, as the district court found, the
award was "to recompense [D'Agostino] for the attorney fees he
expended in representing [Michelle] Genovese during the divorce and
custody proceedings against [John] Genovese. The primary debt is the
child custody and support obligation with the subsequent award of attor-
ney fees directly related thereto."
Second, John Genovese argues that because the attorney's fees are
owed to D'Agostino and not to his wife or child directly that they are not
recoverable under § 523(a)(5). John Genovese failed to make this argu-
ment to the bankruptcy court. Generally, new arguments cannot be made
on appeal for the first time except "in a very limited number of circum-
stances, such as where refusal to consider the newly raised issue would
be plain error or would result in a fundamental miscarriage of justice."
Muth v. United States, 1 F.3d 246, 250 (4th Cir. 1993). No such error
would result here because the Fourth Circuit has expressly found that
fees payable directly to an attorney under a divorce agreement may be
considered nondischargeable under § 523(a)(5). In re Silansky, 897 F.2d
743, 744 (4th Cir. 1990); see also In re Spong , 661 F.2d 6, 10-11 (2d Cir.
1981). We see no reason to treat fees awarded in a divorce agreement
separately from those awarded by a court in a separate subsequent pro-
ceeding.
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