UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF MICHIGAN

SOUTHERN DIVISION

 

In re: MICHAEL A. ZWERK,

Debtor.

 /

JUDITH ZWERK,

Appellant,

v.

Case No. 08-14512

Bankruptcy No. 03-924779

MICHAEL A. ZWERK,

Appellee.

 /

OPINION AND ORDER AFFIRMING THE BANKRUPTCY COURT’S

“ORDER RE: DEBTOR’S MOTION FOR CLARIFICATION”

On October 7, 2008, Bankruptcy Judge Daniel S. Opperman of the United States

Bankruptcy Court for the Eastern District of Michigan entered an order clarifying a

previously stipulated confirmation order. The October 7 order clarified that the

confirmation order was intended to dispose of all pending litigation between the parties,

including a civil suit then pending in Tuscola County Circuit Court. Appellant Judith

Zwerk maintains the confirmation order did not contemplate such a result, and filed this

timely appeal. The appeal has been fully briefed and the court concludes a hearing is

unnecessary. See generally E.D. Mich. LR 7.1(e)(2). For the reasons stated below,

this court will affirm the bankruptcy court’s judgment, as modified by its order of

clarification.

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 Only Appellee was dismissed from the Tuscola lawsuit; his co-defendants

remain. (10/7/08 Bankr. Order.)

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I. BACKGROUND

With one significant exception, the facts involved in this dispute are uncontested. 

Appellee, faced with a large property settlement as a result of his divorce from

Appellant, filed for Chapter 11 bankruptcy. At the time of Appellee’s filing, he was also

one of several defendants in a lawsuit filed by Appellant and pending in Tuscola County

Circuit Court (“Tuscola lawsuit”). In an apparent effort to resolve Appellee’s bankruptcy

petition, the parties entered into a stipulated agreement which is at the heart of this

appeal. Specifically, the parties dispute the meaning of a key provision of that

agreement:

That the Class 5 claim of creditor, JUDITH A. ZWERK, is modified to provide that

Debtor shall pay her an all-inclusive settlement sum of $1,150,000 (“Settlement

Sum”) on or before April 10, 2008 (“Due Date”) as payment in full of any and all

claims, judicial liens, mortgages, issues relating to her entitlement to land rents,

interest on any liens and on the alimony in gross award set forth in the parties’

judgment of divorce, etc.

After the bankruptcy court entered the stipulated agreement on March 17, 2008,

and after Appellee had paid Appellant $1,150,000, Appellee was contacted by

Appellant’s counsel in the Tuscola lawsuit, who informed Appellee of Appellant’s intent

to pursue the pending lawsuit. Appellee, believing the above provision required his

dismissal from the Tuscola lawsuit, filed a motion for clarification with the bankruptcy

court. After briefing and oral argument, the bankruptcy court agreed with Appellee’s

position and ordered Appellee’s dismissal from the Tuscola lawsuit.1

 Throughout these

proceedings, Appellant has maintained that “the only discussions between the parties

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during the settlement negotiations involved the alimony in gross provision” of the

parties’ judgment of divorce. (Appellant’s App. at 1.) As such, Appellant contends any

release from the Tuscola lawsuit was neither bargained for nor agreed to in the

stipulated agreement. It is the scope of any release that forms the basis for this appeal.

II. STANDARD

A. Jurisdiction

Appellant appealed the October 7, 2008 order within the ten day period provided

for timely appeals under Federal Rule of Bankruptcy Procedure 8002. Upon such timely

notice, this court has jurisdiction over Appellant’s appeal pursuant to 28 U.S.C. §

158(a), which governs appeals from final orders of the bankruptcy court. Title 28 of the

United States Code, section 158 states in relevant part: 

(a) The district courts of the United States shall have

jurisdiction to hear appeals 

(1) from final judgments, orders, and decrees; 

. . .

(3) with leave of the court, from other interlocutory orders

and decrees; . . . of bankruptcy judges entered in cases and

proceedings referred to the bankruptcy judges under section

157 of this title. 

28 U.S.C. § 158(a). A final order of a bankruptcy court may be appealed as of right

under § 158(a)(1). In re ASC Inc., 386 B.R. 187, 193-94 (E.D. Mich. 2008). 

B. Standard of Review

In reviewing a bankruptcy appeal, the district court must accept as correct the

bankruptcy court’s findings of fact, unless they are clearly erroneous. Fed. R. Bankr. P.

8013; see also In re Wilkinson, 196 F. App’x 337, 341 (6th Cir. 2006) (quoting In re

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 Appellant cites to In re Beaver Office Prods., Inc., 197 B.R. 836 (Bankr. N.D.

Ohio 1996) and Kokkonen v. Guardian Life Ins. Co. of Am., 511 U.S. 375 (1994).

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Gardner, 360 F.3d 551, 557(6th Cir. 2004)). The bankruptcy judge’s conclusions of law

are reviewed de novo. Wilkinson, 196 F. App’x at 341; see also In re Caldwell, 851

F.2d 852, 857 (6th Cir. 1988).

III. DISCUSSION

Appellant puts forth three main arguments on appeal. First, she argues the

bankruptcy court was without jurisdiction to clarify the settlement agreement. Appellant

next claims the Tuscola lawsuit is not dischargeable, pursuant to 11 U.S.C. § 523. 

Finally, Appellant asserts the plain language of the settlement provision excludes the

Tuscola lawsuit from its coverage. The court will address each argument in turn.

A. Bankruptcy Court Jurisdiction

Appellant asserts that because there was no explicit “retention of jurisdiction by

the bankruptcy court as to the settlement,” the court was without authority to issue an

order clarifying its approval of the settlement. (Appellant’s App. at 20.) As support,

Appellant points to two cases2

 for the proposition that a bankruptcy court does not retain

jurisdiction “to enforce a post-confirmation settlement agreement between [a] debtor

and creditor.” (Id.) Appellant’s characterization of both cited case overgeneralizes the

holdings, however. In those cases, the bankruptcy court did not have jurisdiction to

entertain what was essentially a “claim for breach of contract, part of the consideration

for which was dismissal of an earlier federal [proceeding].” Beaver Office Prods., 197

B.R. at 839 (quoting Kokkonen, 511 U.S. 375, 114 S. Ct. at 1677)). Here, Appellee

asked the bankruptcy court for clarification of a prior order, not the enforcement of the

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settlement agreement through a new breach of contract cause of action. There is no

“new” lawsuit at all, but merely a request for the issuing court to clarify its previous

order. The court is unaware of any legal authority, and Appellant provides none, where

an issuing court found itself without jurisdiction to clarify an order it had issued only a

short while earlier. In fact, the court is aware of authority to the contrary. See In re

Applewood Chair Co., 203 F.3d 914, 918 (5th Cir. 2000) (upholding bankruptcy court’s

consideration of a motion for clarification on the court’s previous order). Further, from a

practical standpoint, it would make little sense for any court to enter an order which it

could not later modify or clarify, either on motion or sua sponte. See, e.g., E. D. Mich.

LBR 9024-1, “Post-Judgment Motions.” The issuing court is in the best position to

provide guidance, should the parties require it. Appellant’s argument that the

bankruptcy court cannot clarify its own order is without merit.

B. Dischargeability

Appellant also argues that specific statutory provisions of the bankruptcy code

prohibit the discharge of the Tuscola lawsuit. (Appellant’s App. at 19.) She points to 11

U.S.C. § 523, which precludes the discharge of “any debt . . . for money, property,

services, or an extension, renewal, or refinancing of credit, to the extent obtained by

false pretenses, a false representation, or actual fraud.” 11 U.S.C. § 523(a)(2)(A). 

Another provision, § 523(a)(19), prohibits the discharge of a debt “that is for the violation

of any of the Federal securities laws . . . or common law fraud, deceit, or manipulation in

connection with the purchase or sale of any security.” Because the Tuscola lawsuit

contains allegations that Appellee “committed fraud, [and] transferred stock without . . .

authority.” (Appellant’s App. at 19), Appellant contends it is the type of item specifically

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excluded from discharge under sections 11 U.S.C. §§ 523(a)(2)(A) and (a)(19). The

court cannot agree. “It is well established that when the statute’s language is plain, the

sole function of the courts – at least where the disposition required by the text is not

absurd – is to enforce it according to its terms.” Till v. SCS Credit Corp., 541 U.S. 465,

486 (2004) (internal quotation omitted). The plain language of the relied upon sections

prohibits discharge of any debt for “money, property, services . . . obtained by false

pretenses,” “violations of . . . Federal securities laws,” or “common law fraud.” 11

U.S.C. §§ 523(a)(2)(A), (a)(19)(A). The statutory language does not prohibit the

discharge of a lawsuit through stipulated agreement. Nor does the fact that the lawsuit

contained allegations of fraud bring it 11 U.S.C. § 523. The end-result of the Tuscola

lawsuit may or may not be a finding of fraud, which in turn may or may not bring it within

11 U.S.C. § 523. But at the time the Tuscola lawsuit was discharged, this court cannot

conclude any debt premised on fraud had been established. The statute is silent as to

whether a lawsuit, which may later legally establish a covered debt, is to be prohibited

from discharge. Appellant provides no legal authority construing 11 U.S.C. § 523 to

provide such coverage. Without more, the court agrees with the bankruptcy court and

finds that the Tuscola lawsuit was eligible for discharge under the parties stipulated

agreement.

C. Language of Agreement

Finding that the bankruptcy court had jurisdiction to rule on Appellee’s motion to

clarify, and finding that the Tuscola lawsuit was not precluded from discharge under 11

U.S.C. § 523, the court now turns to the actual language of the stipulated settlement

agreement. Appellant argues that “there had never been a discussion as to the

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discharge of the Tuscola County lawsuit” (Appellant’s App. at 14-15) before or during

the negotiations of the settlement agreement. “Under Michigan law, contracts are not

open to judicial interpretation and must be enforced as written, ‘absent ambiguity or

internal inconsistency.’” In re Plastech Engineered Prods., Inc., 382 B.R. 90, 113

(Bankr. E.D. Mich. 2008) (quoting Universal Underwriters Ins. Co. v. Kneeland, 628

N.W.2d 491, 494 (Mich. 2001)). “Contract terms are ambiguous if they ‘are reasonably

and fairly susceptible to multiple understandings and meanings.’” Plastech, 382 B.R. at

113 (quoting Equitable Life Assurance Soc’y of the United States v. Poe, 143 F.3d

1013, 1016 (6th Cir. 1998)). If the contract language is clear, however, “the contract is

construed as a matter of law and enforced as written.” In re Big Buck Brewery &

Steakhouse, 08-CV-12471, 2009 WL 56044, *3 (E.D. Mich. Jan. 8, 2009) (applying

Michigan rules of contract construction in Chapter 11 appeal.)

Here, the stipulated agreement states:

That the Class 5 claim of creditor, JUDITH A. ZWERK, is modified to provide that

Debtor shall pay her an all-inclusive settlement sum of $1,150,000 (“Settlement

Sum”) on or before April 10, 2008 (“Due Date”) as payment in full of any and all

claims, judicial liens, mortgages, issues relating to her entitlement to land rents,

interest on any liens and on the alimony in gross award set forth in the parties’

judgment of divorce, etc.

(Appellant’s App. at 6.) Appellant contends the phrase “set forth in the parties’

judgment of divorce” was intended, and should be read, to apply to every item in the list

before it. (Appellant’s App. at 8.) 

Under Appellant’s reading, the list would comprise “any and all claims set forth in

the parties’ judgment of divorce,” “judicial liens set forth in the parties’ judgment of

divorce,” “mortgages set forth in the parties’ judgment of divorce,” “issues relating to her

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 A minor grammatical problem in the form of a possibly extraneous preposition

can be seen by collapsing the list further to reveal that Appellee must “pay . . . [a] sum .

. . as payment . . . of . . . on [sic] the alimony in gross award set forth in the parties’

judgment of divorce,” but this the court sees as a mere drafting error that neither

changes the otherwise plain meaning of the list nor deflects the court from its analysis.

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 The court is cognizant that, where the language at issue is clear and

unambigious, the court should “assign the plain and ordinary meaning to each term and

interpret the contract without the aid of extrinsic evidence.” In re Spinnaker Indus., Inc.,

No. C2-06-902, 2007 WL 2874800, *2 (S.D. Ohio Sept. 27, 2007) (quoting Int’l

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entitlement to land rents set forth in the parties’ judgment of divorce,” and “interest on

any liens set forth in the parties’ judgment of divorce.” Appellant argues that because

the Tuscola lawsuit was not included in the parties’ judgment of divorce, it was not

intended to fall under the settlement clause. Appellant’s position contradicts a commonsense reading of the above paragraph. It is clear that the paragraph comprises a list of

items, only one of which is “the alimony in gross award set forth in the parties’ judgment

of divorce, etc.” 

The plain words of the list, giving effect to the punctuation contained within, are

understood to require Appellee to “pay . . . [a] sum . . . as payment . . . of” (1) claims, (2)

judicial liens, (3) mortgages, (4) issues relating to her entitlement to land rents, (5)

interest on any liens and (6) on the alimony in gross award set forth in the parties’

judgment of divorce, etc. To apply the clause “set forth in the parties’ judgment of

divorce” so as to modify every preceding item ignores the “and” which proceeds it in the

list. The clause, in fact, modifies only “the alimony in gross award.”3

 The words of the

stipulated agreement, given their obvious and ordinary meanings, comprehend

coverage for any and all claims between the parties, which would, obviously, include the

Tuscola lawsuit.4

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Multifoods Corp v. Commercial Union Ins. Co., 309 F.3d 76, 83 (2d Cir. 2002)). 

Nonetheless, if extrinsic evidence were to be considered, it strongly supports Appellee’s

position that the Tuscola lawsuit was considered part of the settlement agreement. As

one example, the bankruptcy judge questioned Appellant’s counsel as to whether there

were any matters not covered under the agreement. Appellant’s counsel noted three

items, but not the Tuscola lawsuit. (Hr’g Tr. 4, Mar. 6, 2008.) Appellant herself

confirmed this understanding. (Id. at 6.) As the Tuscola lawsuit was filed by Appellant

and her same counsel on October 30, 2001 and amended on January 13, 2004

(Appellant’s App., Ex. A at 11), they were aware of its existence during the March 6,

2008 confirmation hearing.

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Appellant attempts to bolster her interpretation by pointing to another section of

the agreement, which states,

In the event that Debtor fails to pay the Class 5 creditor the Settlement Sum on

or before the Due Date, then the automatic stay against her shall be lifted as to

her only by filing an affidavit of verification and shall have the right to enforce her

claim for the balance owed to her in either this Court or the Saginaw County

Circuit court.

(Id. at 8.) Appellant argues, if the agreement were intended to include claims in the

Tuscola lawsuit, the last sentence would have included “and/or the Tuscola County

Circuit Court.” (Id.) Appellant’s logic does not persuade. The clause merely identifies

the courts available for enforcement should Appellee fail to meet his obligations under

the settlement agreement. The Tuscola court, as a venue, was not involved in the

divorce property settlement or the bankruptcy that resulted from that property

settlement. In short, the Tuscola court would have no reason to become involved if

Appellee failed to meet his burdens under the Chapter 11 settlement agreement. The

court cannot conclude that the agreement’s failure to mention the Tuscola court, in light

of the other portion of the agreement already discussed, demonstrates a clear intention

to exclude the Tuscola lawsuit from coverage.

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Finally, Appellant argues that the settlement agreement was only intended to

cover “class 5 claims,” which “only applied to the alimony in gross provision of the

judgment of divorce.” (Appellant’s App. at 15.) Quite simply, the argument ignores the

words of the agreement, which state that the “[c]lass 5 claim of creditor, JUDITH A.

ZWERK, is modified to provide that . . .” Whatever Appellant may have originally

considered “class 5 claims” to include was “modified” through stipulated agreement,

which, as discussed above, included items in addition to the “alimony in gross provision

of the judgment of divorce.” The contract language is unambiguous and not susceptible

to any other interpretation. The court concludes, as a matter of law, that the bankruptcy

court was correct in construing the stipulated settlement agreement to have

contemplated the dismissal of the Tuscola lawsuit.

IV. CONCLUSION

For the reasons stated above, IT IS ORDERED that the bankruptcy court’s

October 7, 2008 “Order Re: Debtor’s Motion for Clarification” is AFFIRMED.

s/Robert H. Cleland 

ROBERT H. CLELAND

UNITED STATES DISTRICT JUDGE

Dated: March 11, 2009

I hereby certify that a copy of the foregoing document was mailed to counsel of record

on this date, March 11, 2009, by electronic and/or ordinary mail.

s/Lisa G. Wagner 

Case Manager and Deputy Clerk

(313) 234-5522

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