Court Opinion

ID: 878693
Source: CourtListenerOpinion
Date Created: 2013-06-04 22:51:18.549896+00
Date Added: 2024-06-11T09:07:26.494275
License: Public Domain

NO. 84-443

              IN THE SUPREME COURT OF THE STATE OF MONTANA

                                        1985

STATE OF MONTANA, ex rel., JOSEPH
DUANE ROUGH,

                Relator,

THE DISTRICT COUFT OF THE EIGHTH
JUDICIAL DISTRICT, et. al.,
                Respondents.

ORIGINAL PROCEEDING:

COUNSEL OF RECORD:

         For Relator:
                LaRue Smith, Great Falls, Montana

         For Respondent:
                Clary   &   Clary, Great Falls, Montana

                                        Submitted on Briefs: July 11, 1985
                                                   Decided:   December 5, 1985

Filed:    DEC-51985

                                    *
                                    #

                                        Clerk
Mr. Justice Fred J. Weber delivered the Opinion of the Court.
     Relator, Joseph Duane Rough, petitioned this Court to
review by writ of certiorari an order of the Cascade County
District Court holding him in contempt.                       We reverse and
remand.
     The issues on appeal are:
     1.    Did      the    District        Court    have     subject        matter

jurisdiction to enforce an obligation allegedly discharged by
the United States Bankruptcy Court?
     2.     Did the District Court err in concluding that the
credit union debt was excepted from discharge?
     In 1977, Joseph Rough married Nancy Rough.                         In July
1982, they co-signed a promissory note for $2,394.20 to the
Malmstrom Federal Credit Union.               Nancy Rough also signed a
separate guarantee agreement.
     On    December       30,    1982, Nancy       and    Joseph Rough were
divorced.          The     District      Court     incorporated       into     the
dissolution decree the parties' property division and support
agreement.         Under    the    decree,       Joseph    Rough    contributed
$250.00    per month child support but no maintenance.                            In
addition, he was to pay the debt owed to Malmstrom Federal
Credit Union.
     In     July    1983,       Joseph    Rough    filed     a   petition         for
bankruptcy.        He listed Malmstrom Federal Credit Union as an
unsecured     creditor.          Nancy     Rough   was     not     listed    as    a
creditor, even though she was a co-debtor and guarantor on
the debt.        On November 16, 1-983, Joseph Rough received a
general discharge of his debts by order of the United States
Bankruptcy    Court       for    the     District of Montana.           Shortly

thereafter, First Liberty Federal Credit Union, successor in
interest    to     Malmstrom      Federal Credit          Union, commenced         a
collection suit against Nancy Rough in Justice Court.
       Nancy Rough moved the District Court to enforce the
terms of the dissolution decree and require Joseph Rough to
make    appropriate    arrangements   to     release      her    from    any
obligation due and owing to the credit union.                Following a
hearing on the motion, the District Court conclud.ed:
       That the bankruptcy discharged the Respondent of
       his own obligation to pay the Credit Union, but did
       not discharge his obligation under the Decree of
       Dissolution to pay the indebtedness due the Credit
       Union for which the Petitioner was held liable.
       That by his failure to pay the Malmstrom Federal
       Credit Union obligation, the Respondent is in
       contempt of the Court's Decree of Dissolution and
       the Agreement between the parties.
       The court held Joseph Fough in contempt but stayed the
iudgrnent, contingent on satisfactory arrangements being made
to pay the credit union and Nancy Rough's attorney's fees.
Upon     Joseph    Rough's    failure      to      make      satisfactory
arrangements, the District Court ordered him to serve 5 days
in jail and execute an allotment authorizing $250 per pay
period to Nancy Rough in order that she might pay the debt
owed the credit union, attorney's fees, and interest.                    The
order stated that the jail term was suspended for ten days
and that if Joseph Rough executed the allotment, the sentence
would be suspended.
       Joseph Rough filed a. petition for writ of certiorari
asking this Court to review the contempt order and money
judgment.      The petition was granted and this Court stayed
further contempt proceedings.

       Did the District Court have subject matter jurisdiction
to enforce an obligation allegedly discharged by the United
States Bankruptcy Court?
       Nancy   Rough   contends    that    the    District      Court    has
jurisdiction      to   determine   whether       obligations     under     a
dissolution decree are enforceable and whether a debt is
excepted from discharge because it was neither listed nor
scheduled.
     Joseph Rough argues that a discharge in bankruptcy wipes
clean a.11 previous debts.     We disagree. Under Title 11 U.S.C.
5 523, some debts flow through the bankruptcy unaffected even
though the debtor is granted a general discharge.                Title 11
U.S.C.   5 523 (a)(3) and (5) specifically except from discharge
unlisted    creditors and    debts     in   the    nature   of    alimony,
maintenance or support.
     The Bankruptcy Court has concurrent but not exclusive
jurisdiction to determine whether debts are excepted from
discharge under S 523(a) (3) and (5).
     [Dlebts that fall within section 523(a) (3) are of
     the type which the bankruptcy court has concurrent
     but not exclusive jurisdiction. Should a creditor
     bring suit in a court other than the bankruptcy
     court on a debt which he contends is excepted from
     discharge under section 523(a) (3), the local court
     would determine the question of dischargeability.

     Section 523 (a)(5) does not fa]-1 within the terms of
     section 523 (c) which discharges debts specified in
     section 523 (a)(2), (4) or (6) unless the creditor
     requests the court for a hearing to determine
     dischargeability of such debts.       In effect, the
     determination of whether debts within subsection
     (a)(2), (4) or (6) are dischargeable under section
     523 (a) falls within the exclusive jurisdiction of
     the bankruptcy court, and only as a matter of
     concurrent jurisdiction with respect to other types
     of debts.   ..
     Thus, debts falling within other clauses of section
     523 (a) may have the issue of dischargeability tried
     in courts other than those of bankruptcy unless a
     complaint is filed by either the creditor or the
     debtor in the bankruptcy court.
3 Collier - Bankruptcy
          on                 ¶4[   523.13[9]   &   523.15[6]     (15th ed.
1985).     See also In re Mattern (Rankr. S.D. Ala. 1983), 33
B.R. 566 and Loyko v. Loyko (N.J. Super. Ct. App. Div. 1985),
     We hold the District Court had jurisdiction to determine
whether the debt was excepted from discharge.

     Did the District Court err in concluding that the credit
union debt was excepted from discharge?
     In substance, the court ruled that the obligation under
the dissolution decree was not dischargeable.             Under Title I1
U.S.C.    S 523 ( a ) (5),   only   debts    constituting       alimony,
maintenance or support are excepted from discharge.
     An indebtedness for a former spouse for alimony,
     maintenance, or support of the spouse or the
     couple's children which is memorialized in the
     divorce decree is not discha.rgeable in bankruptcy.
     11 U.S.C. S 523 (a)( 5 ) . An indebtedness in the
     divorce decree that merely divides the marital
     property, however, is dischargeable.
Matter of Coil (7th Cir. 1982), 680 F.2d 1170, 1171.
     "The issue of when an assumption of joint debts is in
'the nature of alimony, maintenance or support' as opposed to
a division of      communal property        is to be determined by
federal bankruptcy law [and not state law]          .'I   In re Calhoun
(6th Cir. 1983), 715 F.2d 1103, 1107.            The District Court
made no findings of fact or conclusions of law with respect
to the nature of the debt, and for that reason we remand this
issue for further proceedings.
     The mere fact a debt is labeled a property division or
support payment      is not controlling.        A    "well-established
principle of bankruptcy law [is] that dischargeability must
be determined by the substance of the liability rather than
its form."    In re Spong (2d Cir. 1981), 661 F.2d 6, 9.
     Although various tests are used by different circuits,
we adopt the view of the Ninth Circuit:
         Because   of   the    federal   interests
         reflected in the Bankruptcy Act, the
         courts look to federal law to determine
         whether an obligation is "actually in the
         nature of  ...  support" and is therefore
       nondischargeable . . . "[Rlegardless of
       how a state may choose to define
       'alimony', a     ...
                          court, for purposes of
       applying the federal bankruptcy laws, is
       not bound to a label that a state affixes
       to an award, and that, consistent with
       the objectives of federal bankruptcy
       policy, the substance of the award must
       govern. "

      In determining whether an obligation is
      intended for support of a former spouse,
      the court must look beyond the language
      of the decree to the intent of the
      parties and to the substance of the
      obligation     ...
                       The courts that have
      considered this issue have used several
      factors to aid in the characterization of
      the debt.     If an agreement fails to
      provide explicitly for spousal support, a
      court may presume that a so-called
      "property settlement" is intended for
      support when the circumstances of the
      case indicate that the recipient spouse
      needs support      ...Factors indicating
      that support is necessary include the
      presence   of minor children and an
      imbalance in the relative income of the
      parties   ... Similarly, if an obligation
      terminates on the death or remarriage of
      the recipient spouse, a court may be
      inclined to classify the agreement as one
      for support    ... A property settlement
      would not be affected by the personal
      circumstances of the recipient spouse;
      thus, a change in those circumstances
      would   not   affect   a   true property
      settlement, although it would affect the
      need for support.    The court will look
      also to nature and duration of the
      obligation to determine whether it is
      intended as support.     Support payments
      tend to mirror the recipient spouse's
      need for support.    Thus, such payments
      are generally made directly to the
      recipient   spouse   and   are  paid   in
      installments over a substantial period of
      time  .
Shaver v.   Shaver   (9th Cir.   1984), 736 F.2d 1314, 1316-17
(citations omitted) .
    Section 523 (a) (3) provides that debts neither listed nor
scheduled are excepted from discharge unless the creditor had
notice or actual knowledge of the case to permit timeI-y
filing of a proof of claim.        We note that co-debtors and
guarantors     are    classified     as   creditors   and    entitled   to
notice.    - In re Warner (Bankr. D. Utah 1 9 8 0 ) ~5 B.R. 434;
           See
In re Gilbert        (Bankr. N.D.    Ohio 1984), 38 B.R. 948; In re
Barnett (Bankr. S.D. N.Y.           1984), 42 B.R. 254.   We conclude
there is an unresolved fact issue as to whether Nancy Rough
ha.d notice or actual        knowledge of the bankruptcy.          -3
                                                                   See
Collier - Bankruptcy 9 523.13 [5][c] (15th ed.
        on                                                    1985).    We
remand this issue to the District Court.
     We reverse the order of contempt and remand for the

District Court to determine whether the debt was in the
nature    of   alimony, maintenance        or   support and,     if not,
whether Nancy Rough had notice or actual knowledge of the
case to permit timely filing of a proof of claim.

We Concur: