Nancy Jo Burnett v. Clarence Lee Burnett ( 2009 )

United States Bankruptcy Appellate Panel
FOR THE EIGHTH CIRCUIT
No. 09-6011
In re: *
*
Clarence Lee Burnett and *
Frances Ellen Burnett, *
*
Debtors. *
*
*
Nancy Jo Burnett, * Appeal from the United States
* Bankruptcy Court for the
Creditor - Appellant, * Western District of Arkansas
*
v. *
*
Clarence Lee Burnett, *
*
Debtor - Appellee. *
*
Submitted: June 24, 2009
Filed: July 7, 2009
Before SCHERMER, MAHONEY, and SALADINO, Bankruptcy Judges.
SALADINO, Bankruptcy Judge.
Nancy Jo Burnett appeals from an order of the Bankruptcy Court1 filed January
15, 2009, finding that the confirmed Chapter 13 plan in this case prevented her from
collecting more than $300.00 per month post-discharge in connection with domestic
support obligations owed by Clarence Lee Burnett, Debtor. She also appeals the
Bankruptcy Court’s order of March 10, 2009, denying her motion to reconsider. Ms.
Burnett believes that her right to collect post-petition spousal support and accrued
interest on her support arrearage claim was not limited by the confirmed plan. For the
reasons stated below, we reverse.
FACTS AND PROCEDURAL HISTORY
Nancy Jo Burnett and Debtor, Clarence Lee Burnett, were married in 1969.
Debtor and Ms. Burnett had a child who was born on May 24, 1971. Court
proceedings with respect to dissolution of their marital relationship began in 1982
with the filing by Ms. Burnett of a petition for separate maintenance in the Circuit
Court of Boone County, West Virginia. On November 12, 1983, the parties entered
into a written separation agreement under the terms of which Debtor agreed to pay
support to Ms. Burnett. Specifically, Debtor agreed to pay Ms. Burnett the sum of
“$750.00 per month for child support and alimony until the child reaches the age of
eighteen.”2 That support agreement was subsequently incorporated into a decree of
separate maintenance entered in West Virginia on December 19, 1983.
After that date, state court cases were filed in West Virginia and Arkansas with
respect to the dissolution of the marriage and enforcement of support. Divorce decrees
and orders regarding support enforcement were entered in each state. On December
8, 2000, in connection with a proceeding to enforce the payment of support, the West
1
The United States Bankruptcy Court for the Western District of Arkansas.
2
The agreement did not allocate the $750.00 between child support and
alimony.
2
Virginia Supreme Court of Appeals determined that many of the prior court decisions
in West Virginia and Arkansas had jurisdictional defects, and only the decree of
separate maintenance entered in Boone County Circuit Court of West Virginia
incorporating the 1983 written separation agreement contained an enforceable support
order that remained effective. Accordingly, the West Virginia Supreme Court of
Appeals remanded the collection proceedings to the Boone County Circuit Court. On
August 29, 2001, the Circuit Court of Boone County, West Virginia, entered its order
finding that Debtor was in arrears in the payment of support in the principal sum of
$57,402.703 and that further proceedings would be needed to determine the amount
of interest due to Ms. Burnett.
Before further state court proceedings could occur, Debtor and his current
spouse filed the underlying Chapter 13 proceeding on December 13, 2001. The parties
spent the next three years litigating the support issue in the Bankruptcy Court. On
June 2, 2004, the Bankruptcy Court entered an order which stated:
The parties have reached an agreement as follows: Debtor
will modify his plan to provide for payment of $300.00 per
month for the allowed claim of $57,402.70 over the life of
the plan. Once the plan is concluded and the bankruptcy
action is terminated, Debtor will continue to pay the sum of
$300.00 per month toward the balance of the allowed claim
until the debt is satisfied in full. Creditor reserves the right
to return to the Boone County Circuit Court in West
Virginia after this bankruptcy action is concluded to litigate
the issue of accrued interest on the support arrears; Debtor
reserves the right to assert defenses regarding the issue of
accrued interest on the support arrears.
Debtor’s Chapter 13 plan was confirmed on November 15, 2004. The plan
incorporated the language from the June 2, 2004, order, although the language was
3
The order is unclear as to the date as of which such arrearage was calculated.
3
slightly modified to include the word “child” in front of each place where the word
“support” appeared.
Upon completion of payments under their confirmed Chapter 13 plan, Debtor
and his spouse were discharged on November 13, 2007. The Bankruptcy Court issued
an order finding that Debtor had paid $20,100.00 during the pendency of the
bankruptcy proceeding toward the claim of Ms. Burnett in the amount of $57,402.70.
Upon completion of the bankruptcy case, Ms. Burnett returned to the Family
Court of Boone County, West Virginia, to litigate the issue of arrearages and interest
thereon. Debtor failed to appear and defend himself in that proceeding. Ms Burnett
appeared as did an attorney for the West Virginia Bureau of Child Support
Enforcement (“BCSE”).4 BCSE presented spreadsheets showing the calculation of the
arrearages for child support and alimony/spousal support dating back to 1983.5
Without explanation, the entire $750.00 monthly obligation was allocated to child
support until May of 1989 (when the child reached age 18). After that date, an
ongoing obligation of $375.00 per month for spousal support was factored into the
calculations.6 Based on those calculations, on March 7, 2008, the Family Court
4
At various times, the West Virginia Bureau of Child Support Enforcement has
appeared on behalf of Appellant and itself as subrogee of Appellant.
5
The calculations presented reveal that the arrearage amount of $57,402.70 used
in the bankruptcy plan was equal to the principal amount of child support and spousal
support past due as of January of 2001, not including interest.
6
It is unclear how BCSE and the court reached the conclusion that there was an
ongoing spousal support/alimony obligation when the underlying order entered in
1983 only provided for “child support and alimony until the child reaches the age of
eighteen.” The child reached 18 years of age on May 24, 1989. The Family Court of
Boone County apparently determined that while the child support portion of the
obligation ceased on that date, the spousal support obligation continued at the rate of
(continued...)
4
entered its order and judgment finding that Debtor was in arrears on child support in
the principal amount of $11,348.45 plus interest accrued on the child support
arrearage in the amount of $76,956.53. The court also found Debtor owed an arrearage
of $51,215.13 to Ms. Burnett for spousal support plus $55,452.50 for interest on past-
due spousal support. The court further ordered that payments begin immediately by
income withholding. Debtor did not appeal that order and income withholding from
Debtor’s government pension commenced.
Rather than appeal the order of the Family Court of Boone County, Debtor filed
a motion to reopen his Chapter 13 bankruptcy case for purposes of filing a motion for
contempt against the State of West Virginia/BCSE and Ms. Burnett. The motion to
reopen was granted and, on October 13, 2008, Debtor filed a motion for contempt
asserting that BCSE and Ms. Burnett had violated the terms of the confirmed plan by
collecting an amount in excess of $300.00 per month.
On January 15, 2009, the United States Bankruptcy Court for the Western
District of Arkansas granted the motion for contempt, finding that the confirmed plan
provided for a payment of $300.00 per month after discharge and did not contain any
language indicating that Debtor would be under any separate payment obligation for
accrued interest or spousal support. The court further found that Debtor’s only
payment obligation towards child support, spousal support, or interest thereon would
be $300.00 per month. Debtor’s request for punitive damages and attorney fees was
denied because the court found that Ms. Burnett and BCSE’s interpretation of the plan
was reasonable. Ms. Burnett and the State of West Virginia were ordered to
discontinue income withholding and were further ordered to refund all amounts
6
(...continued)
$375.00 per month. In any event, Debtor did not appeal that order.
5
withheld in excess of $300.00 per month. Ms. Burnett asked for reconsideration of
that order, which request was denied.7
STANDARD OF REVIEW
The Bankruptcy Court’s findings of fact are reviewed for clear error and its
conclusions of law are reviewed de novo. First Nat’l Bank of Olathe v. Pontow (In re
Pontow), 111 F.3d 604, 609 (8th Cir. 1997); Sholdan v. Dietz (In re Sholdan), 108
F.3d 886, 888 (8th Cir. 1997); Fed. R. Bankr. P. 8013. The interpretation of the
meaning and effect of a confirmation order is reviewed under the abuse of discretion
standard. Klesalek v. Klesalek (In re Klesalek), 307 B.R. 648, 651 (B.A.P. 8th Cir.
2004) (citing Gen. Elec. Capital Corp. v. Dial Bus. Forms, Inc. ( In re Dial Bus.
Forms, Inc.), 341 F.3d 738, 744 (8th Cir. 2003)). The Bankruptcy Court has discretion
to grant or deny a motion for contempt, which is reviewed under an abuse of
discretion standard. Wycoff v. Hedgepeth, 34 F.3d 614, 616 (8th Cir. 1994). An abuse
of discretion occurs when the Bankruptcy Court fails to apply the proper legal
standard or bases its order on findings of fact that are clearly erroneous. Official
Comm. of Unsecured Creditors v. Farmland Indus., Inc. (In re Farmland Indus., Inc.),
397 F.3d 647, 651 (8th Cir. 2005).
DISCUSSION
The confirmed plan (based on an agreement reached by the parties) provided
that Ms. Burnett would be entitled to an allowed priority claim in the amount of
$57,402.70. Debtor agreed to pay her $300.00 per month for the life of the plan, and
after the plan is concluded, Debtor agreed to continue to pay $300.00 per month until
the debt is satisfied in full. Further, Debtor and Ms. Burnett agreed that Ms. Burnett
“has reserved the right to return to the Boone County Circuit Court in West Virginia
7
Order of the United States Bankruptcy Court dated March 10, 2009.
6
after completion of the bankruptcy to litigate the issue of accrued interest on the child
support arrearage.”8 Thus, the ultimate issue to be decided is whether the confirmed
plan prevents Ms. Burnett from collecting more than $300.00 per month on any
obligation Debtor may owe to her.
11 U.S.C. § 1327(a) provides that the provisions of a confirmed plan bind the
debtor and each creditor. Accordingly, and regardless of what any other court may
have stated during the drawn-out proceedings between Debtor and Ms. Burnett, the
principal amount of the claim held by Ms. Burnett for “support” amounted to
$57,402.70 as of the date of bankruptcy filing. The payment of that claim was
compromised by agreement of the parties such that it would be paid at the rate of
$300.00 per month (both during and after the bankruptcy) until paid in full.
However, that plan only dealt with the principal amount of the support
arrearage claim held by Ms. Burnett as of the date of the bankruptcy filing. It
specifically did not address any claim which was awarded post-petition, namely, the
interest due to Ms. Burnett. In fact, the parties expressly reserved the right to “litigate”
the accrued interest issue upon completion of the bankruptcy plan. Nothing in the
confirmed plan placed any limitation on Ms. Burnett’s right to “litigate” the accrued
interest issue. In particular, nothing in the confirmed plan addressed how the interest,
if found to be due to Ms. Burnett, would be paid. Based on the plain language of the
confirmed plan, the Bankruptcy Court erred in finding that it limited Ms. Burnett’s
right to collection of any amount found to be due to her for accrued interest. 11 U.S.C.
§ 1322(a)(2) (holder of priority claim, which shall be paid in full, may agree to
different treatment of claim); Foster v. Bradbury (In re Foster), 319 F.3d 495, 497-98
(9th Cir. 2003) (holding that interest on nondischargeable child support obligations
continues to accrue after a Chapter 13 petition is filed and is not dischargeable).
8
The agreement actually said “support arrearage” but the plan language said
“child support arrearage.”
7
Upon completion of Debtor’s Chapter 13 plan, Ms. Burnett returned to the
Family Court of Boone County which found that she was owed an ongoing obligation
for the payment of spousal support. To the extent Debtor had a continuing post-
petition obligation to pay spousal support, the confirmed plan could not, and did not,
affect that obligation. 11 U.S.C. §§ 502(b)(5) and 507(a)(1)(A). Therefore, the
Bankruptcy Court erred in finding that the confirmed plan limited Ms. Burnett’s rights
with respect to any domestic support obligation that accrued post-bankruptcy filing.
The confirmed plan in this case dealt only with the principal amount of the
support obligation arrearage that was due to Ms. Burnett on the date of bankruptcy
filing. The figures introduced to the state court post-bankruptcy appear to be based
on the same calculations used to establish Ms. Burnett’s arrearage claim treated in the
plan. To the extent Debtor disputes the calculation of interest on the support arrears
(which the parties expressly agreed could be litigated in Boone County post-
bankruptcy), the amount of post-bankruptcy filing spousal support, or the allocation
of the $20,100.00 paid to Ms. Burnett under the Chapter 13 plan, such issues should
be raised in the Boone County Family Court.
CONCLUSION
Because we conclude that Ms. Burnett’s right to collect accrued interest and to
be paid any post-petition domestic support obligations were not limited by the
confirmed plan, the Bankruptcy Court’s orders of January 15, 2009, and March 10,
2009, are reversed.
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