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