VESTER W. HOLBROOK v. GWENDOLYN M. HOLBROOK
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RENDERED:
MARCH 12, 2004; 2:00 p.m.
TO BE PUBLISHED
Commonwealth Of Kentucky
Court of Appeals
NO. 2003-CA-000136-MR
VESTER W. HOLBROOK
APPELLANT
APPEAL FROM BOYD CIRCUIT COURT
HONORABLE MARC I. ROSEN, JUDGE
ACTION NO. 90-CI-00453
v.
GWENDOLYN M. HOLBROOK
and JEFFREY L. PRESTON
APPELLEES
OPINION
REVERSING AND REMANDING
** ** ** ** **
BEFORE:
COMBS, KNOPF, and McANULTY, Judges.
COMBS, JUDGE.
Vester Holbrook appeals from a judgment of the
Boyd Circuit Court of November 22, 2002, which adopted the
recommendation of the Domestic Relations Commission (DRC) and
ordered him to pay his former wife, Gwendolyn Holbrook, the
appellee, the sum of $60,659.07 -- plus attorney’s fees.
Vester
argues that this money represents Gwendolyn’s portion of his
pension benefits.
However, he contends that it was a debt that
was discharged by the United States Bankruptcy Court.
We are
compelled to agree and thus to conclude that the trial court
erred as a matter of law in failing to give due effect to
Vester’s discharge in bankruptcy.
Therefore, we reverse and
remand.
The parties’ twenty-year marriage was dissolved by a
decree entered in the trial court on August 8, 1991.
Incorporated into the final decree was their property settlement
agreement, the terms of which awarded the parties an equal
interest in the marital portion of Vester’s two pension funds:
the Plumbers and Pipefitters National Pension Fund and the
Plumbers and Pipefitters, Local #348, Pension Fund.
Because
Vester had not retired at the time of the dissolution, the
parties agreed to postpone undertaking the calculations required
in order to determine their respective interest in the two
funds.
The agreement required that the parties communicate with
one another to accomplish the division of the pensions as
follows:
The parties hereto agree to obtain a yearly
listing of any amounts paid into [Vester’s]
pension plan. Upon obtaining said itemized
yearly list, the parties agree that
[Gwendolyn] shall be entitled to a
percentage of that pension based upon the
number of years married and the number of
years paid into the plan. For example, if
[Vester] has been employed twenty-five years
and married, nine years during that period,
then [Gwendolyn] shall be entitled to
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eighteen percent of [Vester’s] pension. A
Qualified Domestic Relations Order [QDRO]
shall issue for the payment of same once the
percentage is determined.
However, they did not communicate after the divorce.
Vester retired in 1992, the year following the dissolution.
failed to notify Gwendolyn, and a QDRO was not entered.
He
From
his retirement date until some time in 1999, Vester received all
of his monthly pension benefits.
When Gwendolyn finally learned
in 1999 that Vester had retired, she filed a motion in the Boyd
Circuit Court seeking to hold him in contempt for failing to
comply with their agreement.
She also requested that the court
order him to reimburse her for her share of the retirement
benefits that had already been disbursed to him.
Gwendolyn’s share of the pensions was determined, and
QDRO’s were accordingly entered to enable her to receive her
portion of the on-going monthly pension benefits.
She has
received $298.87 per month from the national pension fund since
August of 1999; however, her monthly benefit of $385.80 from the
local pension fund did not commence until January 2001.
Vester, by now a resident of Florida, sought
protection from his creditors in bankruptcy court.
His petition
resulted in an automatic stay of Gwendolyn’s legal efforts both
to enforce the provisions of the dissolution decree and to
collect the sums wrongfully withheld by him.
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Gwendolyn and her attorney were named as creditors in
the pending bankruptcy action and were provided notice of that
proceeding.
Nonetheless, they filed no claims to challenge
Vester’s effort to discharge his debt to Gwendolyn.
Accordingly, Vester’s debts, including the debt to Gwendolyn,
were discharged by order of the United States Bankruptcy Court
for the Southern District of Florida on September 9, 1999.
In February 2001, Gwendolyn renewed her motion for
contempt and for reimbursement of her share of the pensions that
had been paid to Vester between 1992 and 1999.
Vester responded
that Gwendolyn’s loss of her share of the pension benefits was
directly attributable to her own failure to have QDRO’s entered
at the time of the dissolution, arguing that it was not his duty
to see that the QDRO’s were entered.
He further contended that
his personal liability to Gwendolyn had been discharged in the
1999 bankruptcy proceeding.
The circuit court remanded the
matter to the DRC.
The DRC entered her report on February 28, 2002,
recommending that Vester be ordered to pay Gwendolyn the pension
arrearage of $60,659.07.
The DRC concluded that because
Gwendolyn had possessed a property interest in the pension plans
at the time of dissolution, Vester “no longer had any interest
in [Gwendolyn’s] portion [of the plans].”
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However, the DRC did
not address Vester’s defense that his discharge in bankruptcy
barred any further attempt to collect the arrearage.
Vester timely filed exceptions to the DRC’s report,
again contending that his debt to Gwendolyn had been discharged
in bankruptcy.
The circuit court approved the DRC’s report
without elaboration on November 22, 2002.
Vester filed a motion
to amend the judgment or to enter specific findings of fact -–
asking the court once again to weigh and to properly consider
the effect of his discharge in bankruptcy.
denied on December 19, 2002.
That motion was
This appeal followed.
Vester argues that the court’s order violates his
discharge in bankruptcy by attempting to enforce an obligation
that was previously discharged.
He challenges the underlying
jurisdiction of the court even to entertain the issue of
dischargeability in bankruptcy of his obligations to Gwendolyn
arising from the decree of dissolution.
He contends that
Gwendolyn was required to file an objection to the discharge in
the bankruptcy proceeding in order to preserve her claim against
him for the pensions benefits already paid.
Gwendolyn argues
that the Boyd Circuit Court “saw through” Vester’s attempt to
defraud her of her share of the pensions, urging that he “cannot
hide behind the Bankruptcy code for this type of behavior.”
Neither the DRC nor the trial judge addressed the
critical issue of the legal effect of Vester’s bankruptcy.
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Not
all marital debts are dischargeable in bankruptcy.
The
Bankruptcy Code separates debts arising from a marital
relationship into two classes.
Some debts (such as debts for
child support or spousal support or maintenance) are nondischargeable as a matter of law.
11 U.S.C. § 523(a)(5).
Gwendolyn acknowledges that the debt at issue is not in the
nature of support or maintenance and that it does not fall
within the protected classification.
However, other obligations
incurred “in the course of a divorce or separation, or in
connection with a separation agreement, [or] divorce decree” are
dischargeable.
11 U.S.C. § 523(a)(15).
Although state courts
have concurrent jurisdiction to determine whether a debt is in
the nature of support or maintenance, the bankruptcy court has
exclusive jurisdiction to determine whether a nonsupport
obligation is dischargeable.
11 U.S.C. § 523(c); In re Milburn,
218 B.R. 862, 865 (Bankr.W.D.Ky.1998).
The Bankruptcy Code further provides that a nonsupport
marital debt, like the pension arrearage at issue, shall be
discharged unless the creditor files a complaint “no later than
60 days after the date set for the meeting of creditors.”
4007; 11 U.S.C. § 523(c)(1).
not file such a complaint.
FRBP1
As stated earlier, Gwendolyn did
Thus, although she may have arguably
been successful in preventing the discharge of the debt if she
1
Federal Rules of Bankruptcy Procedure.
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had responded in that forum, neither the Boyd Circuit Court nor
this Court has the jurisdiction to reverse the order of the
bankruptcy court discharging Vester’s debt.
In the course of defrauding Gwendolyn, Vester also
managed to enjoy a wrongful windfall by invoking bankruptcy.
Repugnant as were both his deceptive behavior and the legal
result of the bankruptcy proceeding, we believe that the trial
court had no choice but to recognize and to give full faith and
credit to the order of discharge of the bankruptcy court -including the Code’s provision barring the commencement or
continuation of any action to collect personal debts of the
debtor pre-dating the filing of the petition.
524(a).
11 U.S.C. §
Therefore, we conclude that the court erred in failing
to give effect to the discharge of the bankruptcy court.
Without citing any authority, Gwendolyn argues that
the Boyd Circuit Court somehow maintained jurisdiction to order
Vester to pay the arrearage because he admittedly had
fraudulently received his benefits over the seven-year period.
However, despite his fraudulent and unsavory conduct, the
dischargeability of his debt to Gwendolyn was a matter wholly
entrusted to the exclusive purview of the bankruptcy court.
In
addition to debts relating to nonsupport marital dissolution
obligations, Congress has conferred solely upon the bankruptcy
court the jurisdiction to determine the dischargeability of
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debts incurred by fraud (§ 523(a)(2)) and debts arising from
“fiduciary misconduct, embezzlement or larceny.”
§ 523(a)(4).
Again without citing any authority, Gwendolyn seeks to
distinguish away the pre-emptive impact of federal bankruptcy
law by characterizing the arrearage as a “property right” rather
than as a debt susceptible of being discharged.
This argument
is valid only as it relates to on-going pension benefits.
That
is, by filing bankruptcy, Vester cannot subject Gwendolyn’s
interest in the funds remaining in the pensions to the interests
of his creditors; neither could he terminate her rights in his
own favor.
We conclude that Gwendolyn has no claim against the
pension funds for the accumulated past arrearage.
Her claim for
the arrearage can only be asserted against Vester personally as
his debt.
11 U.S.C. § 101(12) defines “debt” as a “liability on
a claim.”
A “claim” is defined broadly as follows:
(A)
(B)
right to payment, whether or not such
right is reduced to judgment,
liquidated, unliquidated, fixed,
contingent, matured, unmatured,
disputed, undisputed, legal, equitable,
secured, or unsecured; or
right to an equitable remedy for breach
of performance if such breach gives
rise to a right to payment, whether or
not such right to an equitable remedy
is reduced to judgment, fixed,
contingent, matured, unmatured,
disputed, undisputed, secured, or
unsecured;
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11 U.S.C. § 101(5).
Notwithstanding Gwendolyn’s initial
interest in the pension funds, Vester’s breach of the property
settlement agreement constituted a claim which he was legally
(although not morally or equitably) entitled to discharge upon
approval by the bankruptcy court.
A new debt was created each
month when Vester received a pension payment which he concealed
and withheld from Gwendolyn.
Federal bankruptcy law and the
doctrine of res judicata preclude further consideration by the
trial court of Vester’s obligation to pay that debt.
Finally, it appears that Vester may have received some
pension benefits following the filing of his bankruptcy petition
and before one or both of the pension funds accepted Gwendolyn’s
QDRO’s.
In a voluntary Chapter 7 case, only those debts arising
prior to the petition date are eligible for discharge.
U.S.C. § 727(b).
11
Therefore, we remand this matter for a
determination of the amount of benefits, if any, owed to
Gwendolyn resulting from the payments of pension benefits
accruing between the date of filing of Vester’s bankruptcy
petition and the effective date of Gwendolyn’s QDRO’s.
The judgment of the Boyd Circuit Court is reversed,
and this matter is remanded for further proceedings consistent
with this Opinion.
ALL CONCUR.
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BRIEF FOR APPELLANT:
BRIEF FOR APPELLEE:
Patrick M. Hedrick
Ashland, Kentucky
Jeffrey L. Preston
Catlettsburg, Kentucky
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