Court Opinion

ID: 2649631
Source: CourtListenerOpinion
Date Created: 2014-01-17 00:02:29.701467+00
Date Added: 2024-06-11T12:33:09.633602
License: Public Domain

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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                                       14