Bendetti v. Gunness (In Re Gunness)

FILED
JAN 16 2014
1 SUSAN M. SPRAUL, CLERK
U.S. BKCY. APP. PANEL
2 OF THE NINTH CIRCUIT
3 UNITED STATES BANKRUPTCY APPELLATE PANEL
4 OF THE NINTH CIRCUIT
5 In re: ) BAP No. CC-13-1099-KuBaPa
)
6 PATRICIA GUNNESS, ) Bk. No. SV 11-18699-VK
)
7 Debtor. ) Adv. No. SV 11-01590-VK
________________________________)
8 )
JEANETTE BENDETTI; DAVID KARTON,)
9 )
Appellants, )
10 )
v. ) OPINION
11 )
PATRICIA GUNNESS, )
12 )
Appellee. )
13 ________________________________)
14
15 Argued and Submitted on November 21, 2013
at Pasadena, California
16
Filed – January 16, 2014
17
Appeal from the United States Bankruptcy Court
18 for the Central District of California
19 Honorable Victoria S. Kaufman, Bankruptcy Judge, Presiding
20
21 Appearances: John R. Yates of Greenberg & Bass LLP argued for
appellants Jeanette Bendetti and David Karton;
22 Daniel B. Spitzer argued for appellee Patricia
Gunness.
23
24
25 Before: KURTZ, BALLINGER* and PAPPAS, Bankruptcy Judges.
26
27
*
28 Hon. Eddward P. Ballinger, Jr., United States Bankruptcy
Judge for the District of Arizona, sitting by designation.
1 KURTZ, Bankruptcy Judge:
2
3 INTRODUCTION
4 The debtor filed an adversary proceeding against her
5 husband’s ex-wife and the ex-wife’s family law attorney seeking a
6 determination that the debt she owes to the husband’s ex-wife is
7 dischargeable. The bankruptcy court granted summary judgment in
8 favor of the debtor, holding that neither 11 U.S.C. § 523(a)(5)1
9 nor § 523(a)(15) apply to the debt. The ex-wife and her attorney
10 appealed.
11 Because the debt lacks the requisite connection to “a
12 spouse, former spouse, or child of the debtor” (emphasis added),
13 we agree with the bankruptcy court that § 523(a)(5) and
14 § 523(a)(15) are inapplicable. We AFFIRM.
15 FACTS
16 The key facts are undisputed. At the time of her bankruptcy
17 filing, debtor Patricia Gunness and her husband Paul Bendetti
18 jointly and severally owed roughly $280,000 in attorney’s fees to
19 Paul’s ex-wife Jeanette Bendetti. The attorney’s fee awards were
20 issued pendente lite by the Los Angeles County Superior Court in
21 a fraudulent transfer lawsuit Jeanette filed in 2008 against both
22 Paul and Patricia (LASC Case No. ED 008 213). In turn, the
23 fraudulent transfer lawsuit was part of the dissolution
24 proceedings between Paul and Jeanette. Even though the
25
26 1
Unless specified otherwise, all chapter and section
27 references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532, and
all “Rule” references are to the Federal Rules of Bankruptcy
28 Procedure, Rules 1001-9037.
2
1 dissolution proceedings were commenced in 1993, and a dissolution
2 judgment issued in 1994, the 2008 fraudulent transfer lawsuit was
3 filed in and connected to the dissolution proceedings because
4 Jeanette claimed that, unbeknownst to her at the time, Paul had
5 fraudulently transferred some of their community property assets
6 to Patricia.
7 Both sides have sparred over the nature of the fee awards,
8 in the sense of whether they are attributable to the dissolution
9 proceedings, the fraudulent transfer lawsuit, or both, and
10 whether the awards were needs based, conduct based, or both.
11 These disputes are irrelevant to our resolution of this appeal.
12 In July 2011, Patricia commenced her chapter 7 bankruptcy
13 case, and in October 2011 she commenced an adversary proceeding
14 against Jeanette and Jeanette’s family law counsel David Karton,
15 to whom some of the fee awards were directly payable. In her
16 complaint, Patricia sought a determination that neither
17 § 523(a)(5) nor § 523(a)(15) applied to the fee awards. Among
18 other things, Patricia asserted in the complaint that the two
19 statutory provisions did not apply because the fee awards were
20 not owed to or recoverable by “a spouse, former spouse or child
21 of the debtor.” See § 101(14A)(A)(i); § 523(a)(15).
22 In June 2012, Patricia filed a summary judgment motion based
23 in part on the same assertions regarding the applicability of
24 § 523(a)(5) and § 523(a)(15) she made in her complaint. Jeanette
25 and Karton opposed the motion. They admitted that neither of
26 them technically was a spouse, former spouse, or child of
27 Patricia’s. But they pointed to a number of cases interpreting
28 the scope of § 523(a)(5) or § 523(a)(15) that have either
3
1 downplayed or ignored the identity of the payee/creditor, instead
2 choosing to focus on the underlying nature of the debt and
3 whether the debt in substance constituted a support award
4 (covered by § 523(a)(5)) or a non-support domestic relations
5 award (covered by § 523(a)(15)). These cases, Jeanette and
6 Karton reasoned, demonstrated that the fee awards should be
7 deemed to be owed to or recoverable by a spouse, former spouse,
8 or child of the debtor in part because of the underlying nature
9 of the fee awards and in part because the state court joined
10 Patricia as a party to the dissolution proceedings. According to
11 Jeanette and Karton, this made Jeanette the equivalent of a
12 spouse, former spouse or child of the debtor. As they put it:
13 [Patricia] . . . ignores the fact that she is a party
to the divorce proceeding. As such, she is essentially
14 a spouse because, absent the court ordering her joined
as a party, only the husband and the wife can be
15 parties to a dissolution proceeding.
16 Defendants’ Opposition to Motion for Summary Judgment (July 24,
17 2012) at 9:19-22.2
18 The bankruptcy court disagreed with Jeanette’s and Karton’s
19 broad interpretation of § 523(a)(5) and § 523(a)(15). The
20 bankruptcy court acknowledged the decisions holding that these
21 two provisions do not necessarily require the payee of the debt
22 to be the spouse, former spouse or child of the debtor. But the
23 court concluded that these cases were inapposite. In reaching
24
2
25 See also id. at 10:6-8 (“once Patricia was joined as a
party to the dissolution action, she comes within the non-
26 dischargeability provisions of § 523(a)(15), and, presumably
§ 523(a)(5).”); id. at 9:23-24 (“the order for joinder may well
27 be the most significant factor in support of Defendants’
contention that the debt owed them from Patricia should not be
28
discharged.”)
4
1 this conclusion, the bankruptcy court focused on the fact that
2 there was no familial relationship between Patricia and Jeanette.
3 According to the court, the purpose, intent, and plain meaning of
4 § 523(a)(5) and § 523(a)(15) all required the specified type of
5 familial relationship as a prerequisite to nondischargeability.
6 Without the requisite familial relationship, the court reasoned,
7 the provisions simply did not apply.
8 On February 15, 2013, the bankruptcy court entered both an
9 order granting summary judgment and a separate judgment in
10 Patricia’s favor disposing of the adversary proceeding. Jeanette
11 and Karton timely filed their notice of appeal on February 27,
12 2013.
13 JURISDICTION
14 The bankruptcy court had jurisdiction pursuant to 28 U.S.C.
15 §§ 1334 and 157(b)(2)(I). We have jurisdiction under 28 U.S.C.
16 § 158.
17 ISSUE
18 In the process of granting summary judgment, did the
19 bankruptcy court incorrectly hold that § 523(a)(5) and
20 § 523(a)(15) did not apply because the subject debt was not
21 connected to a spouse, former spouse or child of the debtor?
22 STANDARDS OF REVIEW
23 We review summary judgment rulings de novo. Bendon v.
24 Reynolds (In re Reynolds), 479 B.R. 67, 71 (9th Cir. BAP 2012).
25 The bankruptcy court’s decision that a claim is dischargeable
26 also is subject to de novo review. See Miller v. United States,
27 363 F.3d 999, 1004 (9th Cir. 2004). So is the bankruptcy court’s
28 interpretation of the Bankruptcy Code. See Danielson v. Flores
5
1 (In re Flores), 735 F.3d 855, 856 n.4 (9th Cir. 2013) (en banc).
2 DISCUSSION
3 This appeal hinges on a single question of law regarding the
4 meaning and effect of the phrase “spouse, former spouse or child
5 of the debtor” as applicable to both § 523(a)(5) and
6 § 523(a)(15). Given the plain meaning of the language and the
7 context in which it is used, the phrase appears to limit the
8 scope of debt nondischargeable under both provisions. Generally
9 speaking, § 523(a)(5) covers claims in the nature of alimony,
10 maintenance, or support, while § 523(a)(15) covers other, non-
11 support obligations arising from domestic relations proceedings.
12 As to each provision, the phrase “spouse, former spouse or child
13 of the debtor” on its face appears to specify to whom the debt
14 must be owed for nondischargeability to apply.3
15 Prior to enactment of the Bankruptcy Abuse Prevention and
16 Consumer Protection Act of 2005, Pub.L. No. 109–8, 119 Stat. 23
17 (“BAPCPA”), the above-referenced phrase appeared directly in
18 § 523(a)(5), which at the time read in relevant part as follows:
19 (a) A discharge under section 727, 1141, 1228(a), 1228(b),
or 1328(b) of this title does not discharge an individual
20
21 3
Indeed, in addressing this phrase in the context of
22 discussing nondischargeability under § 523(a)(5), Collier on
Bankruptcy states:
23
Although the courts have not been consistent, the
24 language of the statute dictates that if the obligation
25 is not one owed to the spouse, former spouse, or child
of the debtor or such child’s parent, legal guardian or
26 responsible relative, it is dischargeable under section
523(a)(5), even though it is in the nature of support.
27
4 Collier on Bankruptcy ¶ 523.11[4] (Alan N. Resnick & Henry J.
28
Sommer eds., 16th ed., 2013).
6
1 debtor from any debt –
2 * * *
(5) to a spouse, former spouse, or child of the debtor,
3 for alimony to, maintenance for, or support of such
spouse or child, in connection with a separation
4 agreement, divorce decree or other order of a court of
record, determination made in accordance with State or
5 territorial law by a governmental unit, or property
settlement agreement . . . .
6
7 (Emphasis added.)
8 BAPCPA restructured § 523(a)(5) by simply declaring
9 nondischargeable a debt “for a domestic support obligation” and
10 moving and refining the detail of what constitutes a domestic
11 support obligation into a new definitional provision, § 101(14A),
12 which specifies that:
13 The term “domestic support obligation” means a debt
that accrues before, on, or after the date of the order
14 for relief in a case under this title, including
interest that accrues on that debt as provided under
15 applicable nonbankruptcy law notwithstanding any other
provision of this title, that is --
16
(A) owed to or recoverable by --
17
(i) a spouse, former spouse, or child of the
18 debtor or such child’s parent, legal guardian, or
responsible relative;4 or
19
(ii) a governmental unit;
20
(B) in the nature of alimony, maintenance, or support
21 (including assistance provided by a governmental unit)
of such spouse, former spouse, or child of the debtor
22 or such child’s parent, without regard to whether such
debt is expressly so designated;
23
(C) established or subject to establishment before, on,
24 or after the date of the order for relief in a case
25
4
26 BAPCPA added to the end of the phrase “spouse, former
spouse, or child of the debtor” the following supplemental
27 phrase: “or such child’s parent, legal guardian, or responsible
relative.” The supplemental phrase is not at issue in this
28 appeal because it is undisputed here that we are not in any way
dealing with a child of the debtor.
7
1 under this title, by reason of applicable provisions
of--
2
(i) a separation agreement, divorce decree, or
3 property settlement agreement;
4 (ii) an order of a court of record; or
5 (iii) a determination made in accordance with
applicable nonbankruptcy law by a governmental
6 unit; and
7 (D) not assigned to a nongovernmental entity, unless
that obligation is assigned voluntarily by the spouse,
8 former spouse, child of the debtor, or such child’s
parent, legal guardian, or responsible relative for the
9 purpose of collecting the debt . . . .
10 (Emphasis added.)
11 This restructuring enabled Congress to utilize a uniform and
12 detailed definition of the term “domestic support obligation” in
13 several different sections of the bankruptcy code.5 Regardless,
14 both before and after BAPCPA, the phrase “spouse, former spouse
15 or child of the debtor” was and is part and parcel of
16 § 523(a)(5), either directly in the text of the statute or
17 indirectly by application of § 101(14A)’s definition of the term
18 “domestic support obligation.”
19 BAPCPA also significantly altered § 523(a)(15). Before
20 BAPCPA, a debt otherwise covered by § 523(a)(15) nonetheless was
21 dischargeable if the debtor was financially unable to repay the
22 debt or the benefit to the debtor associated with discharge
23 outweighed the detriment therefrom to the spouse, former spouse
24 or child of the debtor. See Ashton v. Dollaga (In re Dollaga),
25
26
5
See 2 Collier on Bankruptcy, supra, at ¶ 101.14A for a
27 listing of Bankruptcy Code sections in which the term “domestic
support obligation” is used; see also Deemer v. Deemer (In re
28
Deemer), 360 B.R. 278, 280-81 (Bankr. N.D. Iowa 2007) (noting the
numerous areas of bankruptcy law that the definition affects).
8
1 260 B.R. 493, 495 (9th Cir. BAP 2001). But BAPCPA removed both
2 the financial capacity criterion and the weighing of debtor’s
3 benefit against the creditor’s detriment. After BAPCPA,
4 § 523(a)(15) renders nondischargeable any debt:
5 (15) to a spouse, former spouse, or child of the debtor and
not of the kind described in paragraph (5) that is incurred
6 by the debtor in the course of a divorce or separation or in
connection with a separation agreement, divorce decree or
7 other order of a court of record, or a determination made in
accordance with State or territorial law by a governmental
8 unit; . . . .
9 (Emphasis added.)
10 Thus, both § 523(a)(5) and § 523(a)(15) are subject to the
11 same limiting phrase, which references debts to “a spouse, former
12 spouse, or child of the debtor.” Even so, many cases, both
13 before and after BAPCPA, have de-emphasized or ignored this
14 phrase, instead choosing to focus on the “nature” of the
15 underlying debt as determining the applicability of the statute.
16 See In re Bub, 494 B.R. 786, 795-96 (Bankr. E.D.N.Y. 2013)
17 (listing cases); Kassicieh v. Battisti (In re Kassicieh), 425
18 B.R. 467, 474-77 (Bankr. S.D. Ohio 2010) (same).
19 Of these cases, Beaupied v. Chang (In re Chang), 163 F.3d
20 1138 (9th Cir. 1998), is the only published Ninth Circuit Court
21 of Appeals decision directly addressing the issue. In In re
22 Chang, the unmarried father and mother of a minor child were
23 fighting over custody of the child. The mother accused the
24 father of sexually abusing the child, which led to the state
25 court’s appointment of a guardian ad litem and a host of neutral
26 experts and the accrual of nearly $100,000 in expert and guardian
27 ad litem fees. Id. at 1140. The father paid most of these fees
28 during the course of the litigation, but the state court
9
1 ultimately apportioned liability for the fees such that it
2 ordered the mother to reimburse the father for a portion of the
3 fees he paid and further ordered the mother to pay the guardian
4 ad litem directly for a portion of his fees remaining unpaid.
5 Id.
6 On appeal from a decision of the bankruptcy court declaring
7 both these debts nondischargeable, this Panel reversed, holding
8 that neither debt was owed to a spouse, former spouse or child of
9 the debtor. Chang v. Beaupied (In re Chang), 210 B.R. 578, 582-
10 83 (9th Cir. BAP 1997). But the Court of Appeals reversed this
11 Panel and reinstated the bankruptcy court’s nondischargeability
12 judgment. In re Chang, 163 F.3d at 1141-42. The court of
13 appeals held that “the identity of the payee is less important
14 than the nature of the debt,” id. at 1141, and explained that,
15 even though the fees were not directly payable to a child of the
16 debtor – a person explicitly covered by § 523(a)(5) – it was
17 sufficient that the fees were incurred for that child’s benefit
18 and were in the nature of support for that child. See id. at
19 1141 & n.1.
20 Some decisions discussing Chang and other, similar cases
21 have broken down the cases into two distinct lines of authority.
22 See, e.g., In re Kassicieh, 425 B.R. at 474-77 (listing and
23 categorizing cases); Simon, Schindler & Sandberg, LLP v.
24 Gentilini (In re Gentilini), 365 B.R. 251, 254-56 (Bankr. S.D.
25 Fla. 2007) (same). The first line focuses on whether the debt
26 arose from goods, services or other benefits or relief provided
27 to the spouse, former spouse or child of the debtor in
28 conjunction with domestic relations proceedings. Sometimes, the
10
1 goods, services, benefits or relief provided have been referred
2 to as the “bounty” of the debt. See In re Kassicieh, 425 B.R. at
3 476 (citing Levin v. Greco, 415 B.R. 663, 666-67 (N.D. Ill.
4 2009)). And the second line of cases focuses on the economic
5 impact discharge of the debt would have on the spouse, former
6 spouse or child of the debtor, and whether the state court
7 presiding over the domestic relations proceedings had provided
8 for that impact to fall on the debtor. See, e.g., Holliday v.
9 Kline (In re Kline), 65 F.3d 749, 751 (8th Cir. 1995); Pauley v.
10 Spong (In re Spong), 661 F.2d 6, 10-11 (2d Cir. 1981).
11 One thing is clear from all of these cases. Even when the
12 debt was not directly payable or owed to the spouse, former
13 spouse or child of the debtor, the bounty of that debt had flowed
14 to one of those family members explicitly covered by the statute,
15 or the discharge of the debt would have adversely impacted the
16 finances of one of those explicitly-covered family members.
17 Relying on Chang and other, similar cases, Jeanette and
18 Karton ask us to hold that the fee awards Patricia owes them are
19 nondischargeable under either § 523(a)(5) or § 523(a)(15). And
20 yet they admit that neither of them is a spouse, former spouse,
21 or child of Patricia’s. Additionally, it is uncontroverted that
22 the bounty of the debt – the benefit of Karton’s attorney’s
23 services – did not flow to a spouse, former spouse, or child of
24 Patricia’s. Nor would the discharge of this debt in Patricia’s
25 bankruptcy case adversely affect the finances of a spouse, former
26 spouse, or child of Patricia’s.
27 Because the familial relationships explicitly covered by the
28 statute are not implicated in the same manner they were
11
1 implicated in any of the above-referenced decisions, § 523(a)(5)
2 and § 523(a)(15) are inapplicable. We are not aware of any cases
3 extending the coverage of these nondischargeability provisions as
4 far as Jeanette and Karton have asked us to, nor have they cited
5 us to any such cases.
6 Jeanette and Karton attempt to bridge the gap between them
7 and Patricia by asserting that the state court effectively
8 created the missing familial relationship by joining Patricia in
9 the dissolution proceedings as a party to the fraudulent transfer
10 lawsuit. In essence, Jeanette and Karton contend that, by
11 joining Patricia as a party in the dissolution proceedings, the
12 state court effectively made Jeanette Patricia’s spouse or former
13 spouse for purposes of § 523(a)(5) and § 523(a)(15). We
14 disagree. The California procedural rule governing joinder on
15 which they rely, Rule 5.24 of the California Rules of Court, is
16 there to ensure that interested third parties are joined into
17 dissolution proceedings when their rights, duties and/or property
18 interests are at issue in the those proceedings. See Hogoboom &
19 King, CAL. PRACTICE GUIDE: FAMILY LAW ¶¶ 3:440-3:443 (Rutter Group
20 2013). The cited procedural rule does not purport to create a
21 new familial relationship where none previously existed.
22 Alternately, Jeanette and Karton argue that the requisite
23 familial relationship can be “imputed” to Patricia. According to
24 Jeanette and Karton, because Patricia’s current husband Paul used
25 to be married to Jeanette and because Patricia allegedly
26 participated in Paul’s scheme to fraudulently transfer community
27 assets belonging to both Paul and Jeanette, Paul’s familial
28 status as Jeanette’s former husband can and should be imputed to
12
1 Patricia. Once again, Jeanette’s and Karton’s contention, while
2 creative, lacks merit. The nondischargeability decisions
3 addressing imputed conduct, intent and liability are based on
4 long-established principles of agency and vicarious liability.
5 See Tsurukawa v. Nikon Precision, Inc. (In re Tsurukawa), 287
6 B.R. 515, 524-26 (9th Cir. BAP 2002)(discussing the historical
7 development of the law in this area). None of these decisions
8 and none of these legal principles in any way would support our
9 imputing a familial relationship between two unrelated parties.
10 On a broader level, Jeanette and Karton contend that the
11 policy favoring the enforcement of domestic relations obligations
12 overrides the policy favoring a fresh start for debtors to such
13 an extent that § 523(a)(5) and § 523(a)(15) should be liberally
14 construed, unlike other exceptions to discharge. We admit that
15 some decisions have suggested as much. See In re Kline, 65 F.3d
16 at 750-51; Shine v. Shine, 802 F.2d 583, 585 (1st Cir. 1986).
17 But we disagree with these cases on this point. All exceptions
18 to discharge are to be construed narrowly so that they are
19 confined to their plainly-expressed terms. See Bullock v.
20 BankChampaign, N.A., 133 S. Ct. 1754, 1760-61 (2013); Kawaauhau v.
21 Geiger, 523 U.S. 57, 62 (1998). And the structure of § 523
22 indicates that all discharge exceptions are subject to the same
23 general standards, like the applicable burden of proof and scope
24 of their construction. See Grogan v. Garner, 498 U.S. 279, 287-
25 88 (1991).
26 Put another way, each exception to discharge represents
27 Congress’ attempt to balance the debtor’s entitlement to a fresh
28 start against strong competing policy concerns. See Bullock, 133
13
1 S. Ct. at 1761; see also Ghomeshi v. Sabban (In re Sabban), 600
2 F.3d 1219, 1222 (9th Cir. 2010); In re Chang, 163 F.3d at 1140.
3 To the extent Congress has not adequately balanced the competing
4 policies, Congress will need to amend the discharge exceptions.
5 It is not up to the courts to expand the coverage of the
6 exceptions under the guise of an improper and unwarranted liberal
7 construction of the exceptions.
8 CONCLUSION
9 For the reasons set forth above, we AFFIRM the bankruptcy
10 court’s summary judgment in favor of Patricia.
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