Joanne Doughty v. Richard Douglas ( 2019 )

United States Bankruptcy Appellate Panel
For the Eighth Circuit
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No. 19-6023
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In re: Joanne Amy Doughty
lllllllllllllllllllllDebtor
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Joanne Amy Doughty
lllllllllllllllllllllDebtor - Appellant
v.
Richard Douglas
lllllllllllllllllllllMovant - Appellee
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Appeal from United States Bankruptcy Court
for the Western District of Arkansas - Hot Springs
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Submitted: November 22, 2019
Filed: December 17, 2019
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Before SCHERMER, SHODEEN, and SANBERG, Bankruptcy Judges.
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SCHERMER, Bankruptcy Judge
Joanne Amy Doughty (Debtor) appeals the bankruptcy court’s 1 order
dismissing her request for relief for alleged violations of the automatic stay and
discharge injunction. We have jurisdiction over this appeal from the final order of
the bankruptcy court. See 28 U.S.C. § 158(b). For the reasons that follow, we affirm.
ISSUE
The issue on appeal is whether the bankruptcy court properly dismissed the
Debtor’s request for relief for alleged violations of the automatic stay and the
discharge injunction. We hold that it did. We also deny the Debtor’s motion to
supplement the record on appeal.
BACKGROUND
In December 2014, the Debtor filed a petition for relief under Chapter 7 of the
Bankruptcy Code. The Debtor received her Chapter 7 discharge on August 9, 2017.
In March 2019, the bankruptcy court reopened the Debtor’s case to allow the Debtor
to file her request seeking relief based on alleged violations of the discharge
injunction and automatic stay (2019 Request).
Richard Douglas is the father of one of the Debtor’s two children. 2 The
Debtor and Mr. Douglas were never married. Nevertheless, they had custody and
support disputes in state court related to their child.
On October 6, 2014, the Arkansas state court entered its initial custody order,
which did not require the Debtor to pay Mr. Douglas. In its September 13, 2017
1
The Honorable Ben T. Barry, Chief Judge, United States Bankruptcy Court for
the Eastern and Western Districts of Arkansas.
2
The Debtor’s 2019 Request and appeal briefs make general allegations against
Ralph Ferrara, the father of the Debtor’s other child. Mr. Ferrara filed an opposition
to the Debtor’s 2019 Request, but he did not appear at the bankruptcy court hearing
or participate in this appeal. We see no error in the bankruptcy court’s holding that
the Debtor had no basis to allege a cause of action against any of the parties named
in her 2019 Request.
2
order, the Arkansas Court of Appeals reversed $50,250 in attorneys’ fees previously
awarded to the Debtor from Mr. Douglas during the custody litigation. Mr. Douglas
requested that he be reimbursed for the attorneys’ fees out of funds held in the
registry of the state court. In July 2018, the state court awarded Mr. Douglas the
$20,150 in interplead funds. Of the $20,150, part represented back child support
owed by the Debtor to Mr. Douglas and $12,574 represented part of the sum to which
Mr. Douglas was entitled following the 2017 Arkansas Court of Appeals decision.
In October 2018, the state court entered a judgment for the remaining balance of
attorneys’ fees owed to Mr. Douglas pursuant to the appellate court’s decision. Then
in November 2018, Mr. Douglas filed a petition for attorney’s fees and costs in the
state court. At the time of the hearing on the motion to dismiss the 2019 Request,
the Debtor was required by the Arkansas state court to pay child support to Mr.
Douglas.
In February 2019, a subpoena was issued in the state court case requiring the
Debtor to produce financial information to Mr. Douglas in connection with the
Debtor’s child support obligations. On March 15, 2019, after the Debtor failed to
comply with the subpoena, Mr. Douglas filed a petition for contempt and to compel
the information.
The Debtor filed her 2019 Request seeking various forms of relief against Mr.
Douglas and others based on alleged violations of the automatic stay and discharge
injunction. 3 Although the Debtor does not clearly articulate what constituted the
automatic stay and discharge injunction violations, she refers to: the subpoena and
motion to compel in the Arkansas state court proceedings; Mr. Douglas’s attorney’s
fee award and receipt of interpleader funds from the state courts; and Mr. Douglas’s
3
The 2019 Requests seeks relief from parties the Debtor defines as “Creditors,”
including Mr. Douglas, Mr. Ferrara, Mr. Douglas’s two state court lawyers, and two
other individuals. Other than general references to “Creditors,” the Debtor makes
no specific arguments on appeal concerning Mr. Douglas’s lawyers or the other two
individuals. To the extent the Debtor disagrees with the bankruptcy court’s decision
to dismiss the relief she sought against those parties, her arguments lack merit.
3
November 2018 state court attorney’s fees request. Part of the relief sought by the
Debtor was a judgment against Mr. Douglas and others for $12,574 (the same as the
amount of the interplead funds given to Mr. Douglas as attorney’s fees). 4
The bankruptcy court granted Mr. Douglas’s motion to dismiss the Debtor’s
2019 Request under Federal Rule of Civil Procedure 12(b)(6). It stated that she had
no basis to allege a plausible cause of action against Mr. Douglas, his attorneys, and
the others named in her 2019 Request. The bankruptcy court ruled on the motion to
dismiss after the Debtor filed her response to it and after the bankruptcy court held
a hearing and a separate setting to announce its ruling on the record, both of which
were attended by the Debtor. The Debtor appealed.
The Debtor filed a motion seeking to supplement the record on appeal with
her affidavit regarding alleged ex parte communications between the bankruptcy
court, Mr. Douglas, and Mr. Douglas’s counsel. In accordance with a September 3,
2019 order, we consider the motion to supplement the record at the same time as the
merits of this appeal.
STANDARD OF REVIEW
“We review the bankruptcy court’s legal conclusions de novo and its factual
findings for clear error.” Ad Hoc Comm. of Non-Consenting Creditors v. Peabody
Energy Corp. (In re Peabody Energy Corp.), 933 F.3d 918, 924 (8th Cir. 2019).
“The granting of a motion to dismiss by a bankruptcy court is reviewed de novo by
the Bankruptcy Appellate Panel.” Lorcon, LLC v. Heyl (In re Heyl), 590 B.R. 898,
901 (B.A.P. 8th Cir. 2018). A determination of the function an award in a domestic
relations matter is intended to serve is a finding of fact reviewable for clear error.
Adams v. Zentz, 963 F.2d 197, 200 (8th Cir. 1992).
4
The Debtor asked for a $12,574 judgment against each of Mr. Douglas’s state court
lawyers and sought their disqualification from representing him in bankruptcy court.
4
DISCUSSION
A motion to dismiss made under Rule 12(b)(6) concerns the legal sufficiency
of a complaint based on failure to state a claim upon which relief can be granted.
FED. R. CIV. P. 12(b)(6). “To survive a motion to dismiss, a complaint must contain
sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible
on its face.’ ” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atlantic
Corp. v. Twombly, 550 U.S. 544, 570 (2007)).” The plausibility standard applies in
“all civil actions.” Iqbal, 556 U.S. at 684 (citation omitted). 5
As was implicit from the bankruptcy court’s ruling, the Debtor’s 2019
Request did not clearly identify the matters at issue and how they were related to
specific automatic stay or discharge injunction violations. The bankruptcy court
held that the Debtor’s 2019 Request failed to state a claim for an automatic stay or
discharge injunction violation. It stated (and remarked that the Debtor admitted at
the hearing on the motion to dismiss), that at the core of all relevant matters were
legal issues regarding child custody. The Debtor provided nothing to show that she
was complaining of debts that were derived from something other than matters
concerning the children and incidental court orders. According to the court, no
automatic stay was in place because all debts referred to by the Debtor concerned
domestic support obligation (DSO) related issues. And, the automatic stay expired
in August 2017 upon the Debtor’s discharge, but virtually all the matters of which
the Debtor complains transpired after August 2017. The court saw no discharge
injunction violation because regardless of when the DSO debts arose, they were not
discharged. We agree with the bankruptcy court’s decision that the Debtor failed to
state a claim in her 2019 Request.
5
Mr. Douglas’s counsel argued in the bankruptcy court that the relief sought in the
Debtor’s 2019 Request was more properly brought as an adversary proceeding and
that it could be denied on those grounds. Counsel agreed for the court to consider
dismissal on grounds other than failure to file the action as an adversary proceeding.
We see no error in the bankruptcy court’s decision to consider and grant dismissal
of the 2019 Request under Rule 12(b)(6), which applies in adversary proceedings.
5
The Bankruptcy Code defines a “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, . . . , 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 . . .
(B) in the nature of alimony, maintenance, or support . . . 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 . . .
(ii) an order of a court of record; or . . .
(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.
11 U.S.C. § 101(14A) (emphasis added). The DSO determination is important to
the analysis of automatic stay and discharge injunction issues. On appeal, the Debtor
does not contest most elements of the DSO determination and only argues about
whether certain of the debts (which we discuss below) are support obligations.
The bankruptcy court correctly decided that the Debtor failed to state a cause
of action based on an automatic stay violation. Bankruptcy Code § 362(b)(2)(A)(ii)
and (B) except from the scope of the automatic stay “the . . . continuation of a civil
action or proceeding . . . for the . . . establishment or modification of an order for
domestic support obligations” and “the collection of a domestic support obligation
from property that is not property of the estate.” 11 U.S.C. §§ 362(b)(2)(A)(ii) and
(B). As the bankruptcy court properly recognized, the stay did not apply to the
matters raised in the 2019 Request because they concern DSOs and there was no
attempt to collect from estate property. The record shows that all matters at issue
concerned child custody and support.
6
Section 362(c)(2)(C) provides that the stay discontinued in the Debtor’s
Chapter 7 case upon the granting of the discharge. See 11 U.S.C. §362(c)(2)(C)
(stay continues until earliest of certain events, one of which is granting or denying
of a discharge). The bankruptcy court properly recognized that almost all matters to
which the Debtor refers took place after entry of the Debtor’s discharge when the
stay no longer existed. In fact, the state court rulings concerning the over $50,000
awarded in favor of Mr. Douglas were entered following the Debtor’s August 2017
discharge. The 2019 state court issuance of the subpoena and contempt proceedings
related to it all took place post-discharge. Mr. Douglas’s November 2018 state court
petition for attorney’s fees followed the Debtor’s discharge.
We also agree with the bankruptcy court that the Debtor failed to state a claim
for a discharge injunction violation. A discharge in bankruptcy “operates as an
injunction against the commencement or continuation of an action, the employment
of process, or an act, to collect, recover or offset any debt as a personal liability of
the debtor.” 11 U.S.C. § 524(a)(2). “One broad exception is a DSO debt.” State of
Missouri v. Spencer (In re Spencer), 868 F.3d 748, 751(8th Cir. 2017). Bankruptcy
Code §523(a)(5) excepts from a debtor’s discharge “any debt . . . for a domestic
support obligation.” 11 U.S.C. § 523(a)(5). Because all matters raised in the
Debtor’s 2019 Request concerned DSOs, any related debt was not discharged, the
discharge injunction did not apply, and the Debtor did not state a plausible claim for
relief.
When it dismissed the Debtor’s 2019 Request, the bankruptcy court found that
permitting the case to proceed would be futile and amount to a waste of judicial
resources. We agree.
None of the many matters considered by the Debtor to be issues on appeal
have merit.
The Debtor admits that child support is a DSO. She argues that the bankruptcy
court erred because the attorney’s fees obligations were not part of DSOs. The
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bankruptcy court appropriately considered the Debtor’s 2019 Request in the context
of whether the award of attorney’s fees was closely tied to the support obligation
and determined that the Debtor could not state a plausible claim for relief because
the attorney fee award was part of the DSO. See Holliday v. Kline (In re Kline), 65
F.3d 749, 751 (8th Cir. 1995) (“The policy underlying section 523(a)(5) . . . favors
enforcement of familial support obligations over a ‘fresh start’ for the debtor.”)
(citation omitted); Williams v. Williams (In re Williams), 703 F.2d 1055, 1057 (8th
Cir. 1983) (“the crucial issue is the function the award was intended to serve.”). The
bankruptcy court remarked that, as the Debtor admitted, at the core of all the relevant
matters were legal issues regarding the custody of the children. It saw nothing by
the Debtor suggesting that the matters complained of concerned anything other than
the children and incidental orders. We see no error by the bankruptcy court.
The Debtor also argues that the attorney’s fees were discharged because they
were incurred pre-petition. When the fees were incurred is irrelevant because the
definition of a DSO expressly includes pre-petition debts. See 11 U.S.C. § 101(14A)
(applies to “a debt that accrues before, on, or after the date of the order for relief”
that was “established or subject to establishment before, on, or after the date of the
order for relief.”).
According to the Debtor, the bankruptcy court erred based on improper
service of the motion to dismiss on her. Federal Rule of Bankruptcy Procedure 8014
states that the argument section of an appellant’s brief “must contain the appellant’s
contentions and the reasons for them, with citations to the authorities and parts of
the record on which appellant relies.” FED. R. BANKR. P. 8014(a)(8). We will not
consider the Debtor’s cursory argument concerning service as it is unsupported by
citations to legal authorities. See United States v. Stuckey, 255 F.3d 528, 531 (8th
Cir. 2001) (citations omitted) (“[W]e regularly decline to consider cursory or
summary arguments that are unsupported by citations to legal authorities.”). And,
the Debtor cannot show harmful error that would merit a reversal of the bankruptcy
court’s decision. See FED. R. CIV. P. 61 (“At every stage of the proceeding, the court
must disregard all errors and defects that do not affect any party’s substantial
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rights.”); FED. R. BANKR. P. 9005 (incorporating Rule 61 in bankruptcy
proceedings). Regardless of why the Debtor did not receive the motion to dismiss
earlier, she received it and filed a response to it prior to the hearing date. Although
the Debtor argued at the hearing about service of the motion, she participated in the
merits of the hearing and did not request additional time to prepare.
The Debtor argues for reversal of the bankruptcy court’s decision based on
alleged ex parte communications before and at the hearing on the 2019 Request by
Mr. Douglas and his counsel with the bankruptcy court and to the prejudice of the
Debtor. She filed a separate motion in this appeal seeking to supplement the record
on appeal with her affidavit concerning the alleged ex parte communications. We
will not consider the issue of alleged ex parte communications because the Debtor
did not raise that issue before the bankruptcy court. See Velde v. Thiel (In re Thiel),
587 B.R. 92, 97 (B.A.P. 8th Cir. 2018) (citation omitted). Because we do not
consider the Debtor’s allegations about ex parte communications on the merits, we
similarly deny her motion to supplement the record on appeal with her affidavit.
All other arguments made by the Debtor and relief requested by her lack merit
or are not properly brought before us.
CONCLUSION
For the reasons stated, the Debtor’s motion to supplement the record on appeal
is DENIED and the decision of the bankruptcy court is AFFIRMED.
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