McCutcheon v. McCutcheon
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ARKANSAS COURT OF APPEALS
DIVISION II
No. CA08-566
Opinion Delivered April
15, 2009
JAMES McCUTCHEON
APPELLANT
APPEAL FROM THE BENTON
COUNTY CIRCUIT COURT
[NO. DR-2004-1991-5]
V.
HONORABLE XOLLIE DUNCAN,
JUDGE
KATHY McCUTCHEON (now Kougl)
APPELLEE
AFFIRMED
JOSEPHINE LINKER HART, Judge
Appellant, James McCutcheon, appeals from the circuit court’s order finding him in
contempt for failing to indemnify appellee, Kathy McCutcheon (now Kougl), as provided in
the parties’ settlement agreement incorporated by reference into the parties’ divorce decree.
Appellant argues that the court erred in holding him in contempt because the obligation was
discharged in bankruptcy. We affirm the circuit court’s order.1
On January 26, 2005, the parties entered into a settlement agreement providing in part
that appellant would retain possession of a 2004 Honda TRX 450R Four Wheeler. Appellant
agreed to be responsible for the debt on the vehicle, have it refinanced in his own name
1
We also note that appellant filed a motion suggesting that the circuit court’s order
may not be final because of outstanding issues regarding a visitation schedule as well as
telephone visitation for the minor child. That motion is moot, because the parties
subsequently supplemented the record with an order showing that those issues were
addressed. Further, the parties did not appeal from that order.
within sixty days, and hold appellee harmless for any debt on the vehicle. Further, the parties
agreed “to keep the other free and harmless and indemnified of and from any and all debts,
charges, or liabilities herein assumed by each . . . .” Each party also agreed to pay the other’s
legal expenses if the party wrongfully refused to comply with the agreement. The divorce
decree was filed on January 28, 2005, and the decree incorporated by reference the settlement
agreement.
On April 23, 2007, appellee filed in the circuit court a petition for contempt, alleging
that appellant had failed to abide by the settlement agreement. The petition asserted that
appellant had failed to refinance the Honda in his own name, that he had defaulted on the
debt, and that the lienholder was seeking judgment against appellee.
At the December 4, 2007 hearing on the petition, exhibits admitted into evidence
showed that on September 16, 2005, appellant filed a Chapter 7 voluntary petition for
bankruptcy. Appellant listed the Honda as property subject to a purchase money security lien
held by a bank, further listing appellee as a codebtor. Appellant, however, did not list appellee
as a creditor. Appellant also signed a statement of intention to retain the Honda and make
regular payments thereon. On December 20, 2005, appellant was granted a discharge. The
discharge, however, did not indicate that appellant intended to make payments on the Honda.
At the hearing, appellee’s attorney noted that on July 22, 2007, a civil judgment in
favor of the Honda lienholder was entered against her for $5025.94, costs of $186.08,
attorney’s fees of $503.59, and interest. Appellee sought an award for these amounts as well
as her attorney fees in the civil judgment and in the contempt proceeding. Appellant argued
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that the Honda debt had been discharged in bankruptcy and that appellee was aware of the
bankruptcy filing.
In its written order, the circuit court stated in part that the “bankruptcy proceeding
did not discharge [appellant] from any obligation to [appellee].” The court noted that appellee
was “not named as his creditor in the bankruptcy proceeding.” The court found appellant in
contempt and ordered appellant to pay appellee the amounts listed above, as well as $300 in
attorney fees that she expended in the civil judgment and $300 that she expended in the
contempt proceeding. This appeal followed.
On appeal, appellant asserts that because he received a discharge in bankruptcy, the
circuit court erred in ordering him to make payments to appellee. Appellant argues that the
proper forum for challenging the discharge would have been in bankruptcy court. Appellant
further observes that appellee was “clearly aware of the bankruptcy petition, as she helped pay
the fee for it . . . .”
Generally, under the statutes in effect at the time appellant filed bankruptcy, debts for
spousal support and child support were not dischargeable. 11 U.S.C. § 523(a)(5). Other types
of divorce-related debts, such as property settlements, were also not dischargeable unless the
debtor could not afford to pay the debt or if the benefit to the debtor from discharging the
debt outweighed the detriment to the other party. 11 U.S.C. § 523(a)(15). Further, a
discharge did not discharge an individual debtor from any debt not listed or scheduled in time
to permit,
(A) if such debt is not of a kind specified in paragraph (2), (4), or (6) of this subsection,
timely filing of a proof of claim, unless such creditor had notice or actual knowledge
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of the case in time for such timely filing; or
(B) if such debt is of a kind specified in paragraph (2), (4), or (6) of this subsection,
timely filing of a proof of claim and timely request for a determination of
dischargeability of such debt under one of such paragraphs, unless such creditor had
notice or actual knowledge of the case in time for such timely filing and request[.]
11 U.S.C. § 523(a)(3).
While appellant asserts that the circuit court did not have jurisdiction to determine
whether a debt was discharged under section 523(a)(15), that is not the issue before the court.
Here, the question on appeal involves section 523(a)(3) and concerns whether appellee “had
notice or actual knowledge of the case.” Appellant further asserts that it “is not an issue in this
case” whether appellee received notice, as appellee “had notice of the filing of the
bankruptcy,” and thus the circuit court “was not determining whether the debt survived, but
instead how far the discharge went,” which is “appropriately the provision of the Bankruptcy
Court.”
We disagree with appellant’s assessment. The circuit court specifically found that the
bankruptcy proceeding did not discharge appellant from any obligation to appellee, noting
that appellee was not named as a creditor in the bankruptcy proceeding. Further, state and
federal courts have concurrent jurisdiction to determine whether a debt survived bankruptcy
because of the debtor’s failure to schedule or list the debt in the petition and the creditor’s
failure to obtain timely notice of the proceedings by other means. Heselton v. Maffei, 374 N.J.
Super. 184, 863 A.2d 1100 (2005). The burden of establishing that a creditor received
adequate notice rests with the debtor. Id.
In addressing whether she had notice or actual knowledge of the case, appellee cites
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a factually similar case, Heselton. There, the issue was whether the ex-husband’s obligation to
indemnify his ex-wife for any liability she might incur under a mortgage on the former marital
home was discharged by his bankruptcy even though he only listed her as a codebtor and not
as a creditor in his bankruptcy petition. The court concluded that the bankruptcy petition did
not give the ex-wife reasonable notice that the indemnification obligation could be discharged
in the bankruptcy proceeding, and therefore she could enforce the obligation notwithstanding
the ex-husband’s bankruptcy.
The court observed that although the ex-wife received a copy of the petition and was
listed as a codebtor, the petition did not list the indemnification obligation as a debt the exhusband was seeking to discharge or identify the ex-wife as a creditor. The court concluded
that the ex-husband’s bankruptcy petition did not afford the ex-wife reasonable notice that
the indemnification obligation could be discharged in the bankruptcy proceeding. In reaching
this conclusion, the court reasoned that the listing of the ex-wife as a codebtor did not give
her reasonable notice that the ex-husband did not consider his indemnification obligation for
that debt to be a component of his child-support obligation or in lieu of alimony and thus
non-dischargeable under section 523(a)(5), but instead was some other kind of debt that was
subject to discharge under section 523(a)(15). Moreover, the ex-husband’s failure to give
adequate notice that he considered the indemnification obligation subject to discharge
deprived her of the opportunity to present evidence and legal argument to the bankruptcy
court relevant to whether this obligation satisfied one of the two alternative conditions of
dischargeability set forth in section 523(a)(15).
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We acknowledge that appellee was listed as a codebtor and that appellee’s attorney
stated in his argument before the circuit court that “[b]ack in September of 2005 [appellant]
did cause to be filed a Chapter 7 voluntary petition for bankruptcy, and my client assisted in
paying the filing and attorney fees for the petition . . . .” Appellant, however, did not list the
obligation as a debt he was seeking to discharge, nor did he identify her as a creditor. And
most importantly, he signed a statement of intention to retain the Honda and make regular
payments thereon. Together, these facts would have indicated to appellee that appellant was
not seeking to discharge his obligations under the settlement agreement. Thus, like the exwife in Heselton, appellee was deprived of her opportunity to present evidence and legal
argument to the bankruptcy court relevant to whether this obligation satisfied one of the two
alternative conditions of dischargeability set forth in section 523(a)(15).
Appellant further argues that Heselton is distinguishable because it involved payments
that were characterized as alimony, that such debts are always non-dischargeable, and that
state and federal courts have concurrent jurisdiction to determine whether the debt is in the
nature of alimony and therefore non-dischargeable. Heselton, however, was not decided on
the basis of whether the debt was in the nature of alimony. Rather, the case addressed
whether the ex-wife had notice or actual knowledge of the case under section 523(a)(3).
Accordingly, we affirm the circuit court’s decision.
Affirmed.
V AUGHT, C.J., and B ROWN, J., agree.
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