Court Opinion

ID: 3019511
Source: CourtListenerOpinion
Date Created: 2015-10-13 22:21:08.980109+00
Date Added: 2024-06-11T11:47:17.038089
License: Public Domain

United States Bankruptcy Appellate Panel
                           FOR THE EIGHTH CIRCUIT

                               No. 97-6028SI

In re:                                  *
                                        *
HOWARD JOHN TATGE,                      *
                                        *   Appeal from the United
            Debtor.                     *   States Bankruptcy Court
                                        *   for the Southern District
PAMELA TATGE,                           *   of Iowa
                                        *
            Plaintiff-Appellee,         *
     -v.-                               *
                                   *
HOWARD JOHN TATGE,                      *
                                        *
            Defendant-Appellant    *

                       Submitted: August 21, 1997

                           Filed: October 8,1997

Before KRESSEL, SCHERMER, and DREHER, Bankruptcy Judges.

DREHER, Bankruptcy Judge

     This is an appeal from the bankruptcy court's determination that a

debt incurred during the course of a marital dissolution proceeding was

excepted from discharge under § 523(a)(5)1 of the

1
          The bankruptcy court also made findings and conclusions
with respect to dischargeability under § 523(a)(15). However,
the Plaintiff conceded that Plaintiff was proceeding solely under
§ 523(a)(5). This renders moot that portion of the appeal which
relates to: (i) the bankruptcy court's order denying Debtor's
motion to dismiss for untimeliness (under § 523(c)(1) and Fed. R.
Bankr. P. 4007(c)); and (ii) the bankruptcy court's findings,
conclusions, and order for judgment holding alternatively that
the debt was excepted from discharge under § 523(a)(15).
Bankruptcy Code.   For the reasons set forth below, we affirm.

                           I.   FACTUAL BACKGROUND

     On March 1, 1990, the eleven-year marriage of Debtor and Appellee,

Pamela Tatge ("Pamela"), was dissolved in Illinois state court.    The

dissolution decree incorporates a Marital Settlement Agreement

("Settlement Agreement") of the parties.    At the time, Debtor owned and

operated an auto parts business.    Pamela was not, and never had been,

employed outside the home and had no special work skills or training.

     The Settlement Agreement provided that Pamela would have custody

of their two minor children and that Debtor would pay $400 per month as

child support.    Debtor was also to maintain medical insurance for the

children.   The Settlement Agreement did not explicitly provide for

alimony, support or maintenance for Pamela.    The parties further agreed

that Debtor would receive the auto parts business and assume the

business debts.    There were also provisions splitting certain personal

property (of which there was little) between Debtor and Pamela.

                                      2
     At the time of the dissolution, Pamela was living with the two

children in a home that had originally been wholly owned by Pamela's

mother.   In order to fund the startup of the auto parts business,

Pamela's mother had earlier deeded a small interest in the home to

Pamela and to Debtor; they, in turn, had borrowed money secured by a

mortgage on the home.   Debtor, Pamela, and Pamela's mother were all

listed on the mortgage.   The Settlement Agreement provided that Debtor

would quitclaim any interest he had in the home to Pamela and Debtor

would assume and pay the mortgage payments of $430 per month.    The

Settlement Agreement further provided that: (1) "said assumption of

mortgage payments can be discharged in bankruptcy in the event . . .

[Debtor] files bankruptcy"; (2) Pamela could join in the petition and

Debtor would pay her attorneys' fees; and (3) if Debtor filed a

bankruptcy petition and defaulted on the mortgage payments, Pamela could

return to state court and seek an award of maintenance from Debtor.    The

Settlement Agreement also specifically provided that any such

maintenance obtained by Pamela was to be for a period of four years from

the date of the entry of the judgment dissolving the marriage, "it being

the intent of the parties that . . . [Pamela] should not be able to

claim maintenance from . . . [Debtor] for more than four . . .

                                    3
years from the date of the entry of the judgment of dissolution."

Finally, the Settlement Agreement recited that each party waived any

further claims arising from the marriage, including, specifically,

maintenance.

     In the ensuing years, Debtor's business floundered.   On December

14, 1994, Debtor filed a petition for relief under Chapter 7 of the

United States Bankruptcy Code, and, on March 28, 1995, the bankruptcy

court issued an order discharging Debtor.

          II. PROCEDURAL HISTORY AND BANKRUPTCY COURT DECISION

     Pamela's original complaint in this action sought a determination

that Debtor's obligations to continue to pay the mortgage payments on

the home were excepted from discharge.   The complaint described the

marital history of the parties, the terms of the Settlement Agreement,

and, in general terms, sought a determination of nondischargeability

"under § 523(a) of the United States Bankruptcy Code," without

specifying a subsection.   Debtor answered, counterclaimed under § 523(d)

of the Code, and moved to dismiss.

     Debtor's motion to dismiss asserted that the complaint lacked

specificity; that, if Pamela was proceeding under § 523(a)(15), the

cause of action was barred by the sixty-day time limit set forth in Fed.

R. Bankr. P. 4007(c); and, that the cause

                                     4
of action was subject to a res judicata defense because of the prior

state court proceedings.   The bankruptcy court treated the motion to

dismiss as one for a more definite statement under Fed. R. Bankr. P.

7012(e) and ordered Pamela to amend her complaint to more specifically

plead her claims.   The court continued for further hearing the other two

portions of the motion.    Pamela then filed an amended complaint in which

she made clear that her claim was under § 523(a)(5) only.    At the

continued hearing, Pamela's counsel again explicitly acknowledged that

she was proceeding solely under § 523(a)(5).   The bankruptcy court then

denied the motion to dismiss, ruling that the lack of particularity had

been corrected in the amended complaint; that res judicata was an

affirmative defense preserved for trial; and, that the argument based on

the sixty day time limitation for asserting an action under § 523(a)(15)

was moot because Pamela was proceeding solely under § 523(a)(5).

     Debtor's answer and counterclaim asserted that Debtor's obligation

to pay the mortgage payments was in the nature of a property settlement

not excepted from discharge under § 523(a)(5).   Debtor also asserted

affirmative defenses including res judicata, equitable estoppel, and

contract.   Debtor also reasserted the counterclaim for attorneys fees

under § 523(d).

                                     5
     After the bankruptcy court denied a motion for summary judgment, a

trial was held on the merits.    The court found that the agreement to

make the mortgage payments was a debt for support of the children and

Pamela that was excepted from discharge under § 523(a)(5) of the

Bankruptcy Code.   The court based its rulings on its finding that, at

the time of the dissolution, the parties intended Debtor's commitment to

be in the nature of support for Pamela and the two children, basically

"to put a roof over their heads."      The court noted, among other factors,

that Pamela had never worked outside the home and had virtually no

marketable job skills; that the only sources of income for her and the

children were the child support and mortgage payments; and that Debtor

had a stable work history and, as a result of the dissolution

proceedings, owned the business and its assets.      The court further noted

that the Debtor's obligation to support his children was not limited by

the language in the Settlement Agreement restricting the amount of

maintenance that Pamela might later obtain.

                                III.   DECISION

     Debtor's main contention on appeal is that the bankruptcy court

erred in holding that Debtor's commitment to pay the mortgage payments

was in the nature of a support obligation

                                       6
excepted from discharge under 11 U.S.C. § 523(a)(5).       In addition,

Debtor asserts that the prior state court judgment is res judicata on

the issue of dischargeability, that the contract between the parties

regarding dischargeability should be enforced, and that, in any event,

Pamela is equitably estopped to contest dischargeability by reason of

such contract.    Debtor also asserts that the bankruptcy court erred in

denying his motion to dismiss and in denying his motion for summary

judgment.

A.     DISCHARGEABILITY UNDER § 523(A)(5)

       Section 523(a)(5) of the Bankruptcy Code excepts from discharge a

debtor's obligation to make alimony, maintenance or support payments to

a former spouse and dependents.       11 U.S.C. § 523(a)(5) (1994).   It is

clear that whether a particular debt is a support obligation or part of

a property settlement is a question of federal bankruptcy law, not state

law.   Williams v. Williams (In re Williams), 703 F.2d 1055, 1056 (8th

Cir. 1983) (quoting H.R. REP. NO. 95-595, at 364 (1977)).      The crucial

issue in making this determination is the intent of the parties and the

function the award was intended to serve.       Holliday v. Kline (In re

Kline), 65 F.3d 749, 751 (8th Cir. 1995); Adams v. Zentz, 963 F.2d 197,

200 (8th Cir. 1992); Williams, 703 F.3d at 1056; Boyle v. Donovan, 724
F.2d 681, 683 (8th Cir. 1984).

                                            7
     The determination of whether an award arising out of marital

dissolution proceedings was intended to serve as an award for alimony,

maintenance or support, or whether it was intended to serve as a

property settlement is a question of fact to be decided by the

bankruptcy court.   Kline, 65 F.3d at 750; Adams, 963 F.2d at 200;

Williams, 703 F.3d at 1056.   As a finding of fact, the bankruptcy

court's determination of this issue may be reversed only if it is

clearly erroneous under the evidence presented.   First Nat'l Bank v.

Pontow, 111 F.3d 604, 609 (8th Cir. 1997).

     We conclude that the bankruptcy court's finding that the Debtor's

obligation to make the mortgage payments was intended to serve as an

award for alimony, maintenance or support is not clearly erroneous.

Factors considered by the courts in making this determination include:

the relative financial conditions of the parties at the time of the

divorce; the respective employment histories and prospects for financial

support; the fact that one party or another receives the marital

property; the periodic nature of the payments; and, whether it would be

difficult for the former spouse and children to subsist without the

payments.   See, e.g., Friedkin v. Sternberg (In re Sternberg), 85 F.3d
1400, 1406 (9th Cir. 1996); Williams, 703 F.2d at 1056; Boyle, 724 F.2d
8
at 683; Shaver v. Shaver, 736 F.2d 1314, 1316 (9th Cir. 1984).   After

properly assessing these factors, the bankruptcy court in this case

found that Debtor's agreement to make the mortgage payments was intended

to serve the most basic of support functions, to provide a home for the

children and Pamela which they otherwise would not have been able to

afford.2   This conclusion is reasonable under the evidence presented,

and for that reason it cannot be disturbed on appeal.   Finally, the

Debtor's argument that the obligation cannot reasonably be construed as

an obligation for support because he cannot now afford it is the very

"needs-based" argument that was rejected in this circuit long ago.     See,

e.g., Draper v. Draper, 790 F.2d 52, 60 (8th Cir. 1986) (relying on In

re Harrel, 754 F.2d 902, 906-07 (11th Cir. 1985)).

B.   THE DEFENSES

     Debtor asserts three "affirmative defenses," each of which is

without merit.

2
     Debtor asserts that Pamela should be bound by certain
admissions he claims Pamela made in pretrial discovery
proceedings. The parties disputed the timeliness of Pamela's
response to a request that she admit that the agreement was in
fact in the nature of a property settlement. Apparently, the
bankruptcy court resolved the dispute in Pamela's favor. This
ruling was a discretionary one, and Debtor has pointed to no
abuse of discretion.

                                     9
     1.    Res Judicata

     Debtor urges that the bankruptcy court was precluded, under the

doctrine of res judicata, from holding that Debtor's obligation to make

the mortgage payments is nondischargeable under § 523(a)(5) because the

terms of the Settlement Agreement, which were incorporated into the

state court judgment, provided that Debtor's obligation to make the

mortgage payments would be dischargeable in bankruptcy.    Section 1738 of

Title 28 directs that state judicial proceedings "shall have the same

full faith and credit in every court within the United States . . . as

they have by law or usage in the courts of such State . . . from which

they are taken."   28 U.S.C. § 1738 (1994).   This statute requires a

federal court to refer to the preclusion law of the state in which

judgment was rendered when determining the preclusive effect of a state

court judgment.    Marrese v. American Academy of Orthopedic Surgeons, 470
U.S. 373, 380, 105 S. Ct. 1327, 1331 (1985); Teleconnect Co. v. Ensrud,

55 F.3d 357, 361 (8th Cir. 1995).    Under Illinois law, a final judgment

rendered by a court of competent jurisdiction in a previous action

between two parties bars a subsequent action between those parties on

the same claim or cause of action.    Hexacomb Corp. v. Corrugated Sys.,

Inc., 678 N.E.2d 765, 770-71 (Ill. App. 1997) (citing

                                     10
Housing Auth. v. Young Men's Christian Ass'n, 461 N.E.2d 959 (Ill.

1984)).

     The requirements of res judicata have not been satisfied in this

case because Pamela's § 523(a) nondischargeability cause of action is

not identical to the cause of action decided in state court.   It is well

settled that an action brought under state law to establish a state

created debt is separate and distinct from an action brought under §

523(a) of the Bankruptcy Code to determine the dischargeability of the

same debt.   Brown v. Felsen, 442 U.S. 127, 134-35, 99 S. Ct. 2205, 2211

(1979); Resolution Trust Corp. v. McKendry (In re McKendry), 40 F.3d
331, 336-37 (10th Cir. 1994).   At the time of the state court's decree,

the Debtor's bankruptcy petition had not yet been filed, and therefore

no cause of action under § 523 yet existed.   As a result, the issue of

dischargeability was not properly before the state court, and any

judgment rendered by the state court on the issue of dischargeability

does not constitute a final judgment rendered by a court of competent

jurisdiction.

     In fact, although inarticulately framed, Debtor is actually urging

that we apply the doctrine of collateral estoppel, or issue preclusion.

It, too, is inapplicable in this case.   Under Illinois law, the doctrine

of collateral estoppel prevents

                                    11
relitigation of a particular issue or fact in a proceeding where that

issue was actually or necessarily decided by a court of competent

jurisdiction in an earlier proceeding.      Hexacomb Corp., 678 N.E.2d at

771.   The issue for determination in this case is whether the Debtor's

commitment to pay the mortgage payments was intended to serve as a

support obligation or as a property settlement.      This issue was not

involved in the prior state court proceeding, was not decided in the

state court proceeding, was not actually litigated in the prior state

court proceeding, and was not necessary to the state court's prior

decision.     See Arnett v. Environmental Science & Eng'g, Inc., 657 N.E.2d
668, 673 (Ill. App. 1995) (holding that a consent judgment is not

entitled to collateral estoppel effect under Illinois law).

Accordingly, issue preclusion is not applicable.

       2.      Contract and Estoppel

       The remaining defenses urge that the bankruptcy court erred

because, by signing the prepetition Settlement Agreement, Pamela waived

any argument that the Debtor's obligation to pay the mortgage payments

would be dischargeable in bankruptcy and Pamela should be estopped to

argue otherwise.     We disagree.

       Waiver is defined as the intentional relinquishment of a known

right.      First Nat'l Bank v. Allen, 118 F.3d 1289, 1294-95

                                       12
(8th Cir. 1997); European Am. Bank v. Benedict (In re Benedict), 90 F.3d
50, 55 (2d Cir. 1996).   Whether a waiver has occurred is a question of

fact that is established by showing that a party actually intended to

relinquish a known right or privilege.     Allen, 118 F.3d at 1294.   In

evaluating the Debtor's contract and estoppel arguments, the bankruptcy

court found that "insofar as the nature of contract is concerned, the

Court finds that the agreement between the parties is such that it

cannot be determined specifically from reading that particular document

what was the intent of the parties."      This finding regarding intent was

not clearly erroneous.   While the Settlement Agreement specifically

provided that Debtor's assumption of the mortgage payments "can be

discharged in bankruptcy in the event [Debtor] files bankruptcy," it

further provided that, should bankruptcy occur, Pamela could return to

state court and obtain additional relief in the form of maintenance.

This suggests that the parties intended that Debtor's obligation was a

maintenance obligation and that bankruptcy would not, in fact, affect

that obligation.    Waiver, therefore, was in no way the intended result

of the agreement.   Rather, the Settlement Agreement preserved

                                     13
Pamela's right to seek maintenance for four years3 in spite of any

subsequent bankruptcy.

     Moreover, it is well settled that agreements regarding subsequent

discharge in bankruptcy are disfavored (see, e.g., Alsan Corp. v.

DiPierro (In re DiPierro), 69 B.R. 279, 282 (Bankr. W.D. Pa. 1987);

Klingman v. Levinson (In re Levinson), 58 B.R. 831, 836-37 (Bankr. N.D.

Ill. 1986).   This should be especially true in dissolution proceedings

for the same reasons that courts refuse to accept the labels affixed to

an award by the divorce court or by the parties themselves in a

separation agreement.    See, e.g., Williams, 703 F.2d at 1057.   In this

case, when the Settlement Agreement attempted to determine

dischargeability, not by label, but by specific agreement, we are still

bound to assess the dischargeability of the debt in the event the Debtor

files for bankruptcy.    As we have previously   held, the Settlement

Agreement was intended to treat the obligation to pay the mortgage

payments as a form of nondischargeable maintenance.

3
     The Settlement Agreement limited Pamela's right to spousal
maintenance to four years, but the obligation to provide child
support was not so limited.

                                     14
C.     THE MOTION   TO   DISMISS   AND THE   MOTION FOR SUMMARY JUDGMENT

       Lastly, we reach Debtor's procedural arguments.

       Preliminarily, we note that a trial court's denial of a motion for

summary judgment is not the proper subject of appeal following trial.

Metropolitan Life Ins. Co. v. Golden Triangle, 121 F.3d 351 (8th Cir.

1997).   In Metropolitan Life, the Eighth Circuit Court of Appeals

adopted "the general and better view . . . against review of summary

judgment denials on appeals from a final judgment after trial."               Id. at

356.   An appeal from a final judgment, however, necessarily incorporates

an appeal from all earlier interlocutory orders (other than an order

denying summary judgment) such as a denial of a motion to dismiss.

Quackenbush v. Allstate Ins. Co., __ U.S. __, 116 S. Ct. 1712, 1718

(1996) ("The general rule is that 'a party is entitled to a single

appeal, to be deferred until final judgment has been entered, in which

claims of district court error at any stage of the litigation may be

ventilated.'"); Glass v. Dachel, 2 F.3d 733 (7th Cir. 1993); Peachtree

Lane Assocs., Ltd. v. Granader (In re Peachtree Lane Assocs., Inc.), 188
B.R. 815, 822 (N.D. Ill. 1995).                Therefore, although the bankruptcy

court's denial of the Debtor's motion for summary judgment is not

properly before us, the bankruptcy court's denial of the Debtor's motion

to dismiss

                                                  15
is fully reviewable on appeal.

     Rule 15(a) of the Federal Rules of Civil Procedure, as

incorporated by Federal Rule of Bankruptcy Procedure 7015, provides that

"a party may amend the party's pleading only by leave of the court or by

written consent of the adverse party, and leave shall be freely given

when justice so requires."    FED. R. BANKR. P. 7015.   The bankruptcy

court's decision whether to allow amendment will be reviewed only for an

abuse of discretion.    Williams v. Little Rock Mun. Water Works, 21 F.3d
218, 224 (8th Cir. 1994); Perkins v. Spivey, 911 F.2d 22, 34-35 (8th

Cir. 1990).

     The bankruptcy court did not abuse its discretion in denying the

motion to dismiss and allowing Pamela to amend her complaint.      Pamela's

original complaint met the notice pleading requirements of Fed. R.

Bankr. P. 7008(a).     Wright v. Anthony, 733 F.2d 575, 577 (8th Cir.

1984); FED R. BANKR. P. 7008(f), 7015.     A motion for a more definite

statement is appropriate where a pleading is so vague or ambiguous that

a party cannot reasonably be expected to plead in response.      This was

the true nature of Debtor's motion to dismiss, and the bankruptcy court

properly exercised its discretion in denying the motion and allowed

Pamela to file an amended and more specific complaint.

                                      16
     Accordingly, we AFFIRM the bankruptcy court's decision.

A true copy.

Attest:

     CLERK, U.S. BANKRUPTCY APPELLATE PANEL
     FOR THE EIGHTH CIRCUIT

                                  17