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In re Taylor

United States Court of Appeals, Tenth Circuit

December 9, 2013

In re: Eloisa Maria TAYLOR, Debtor.
v.
Eloisa Maria Taylor, Cross-Appellee/Appellant. Matthew E. Taylor, Cross-Appellant/Appellee.

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[Copyrighted Material Omitted]

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Karl F. Kalm, of Kalm Law Firm, P.C., Albuquerque, New Mexico, for Eloisa Maria Taylor, Appellant.

Bonnie B. Gandarilla, (George M. Moore with her on the briefs), of Moore, Berkson, & Gandarilla, P.C., Albuquerque, New Mexico, for Matthew E. Taylor, Appellee.

Before BRISCOE, Chief Judge, SEYMOUR and LUCERO, Circuit Judges.

BRISCOE, Chief Judge.

Eloisa Taylor appeals from a decision of the Bankruptcy Appellate Panel of the Tenth Circuit (" BAP" ) affirming a decision of the United States Bankruptcy Court for the District of New Mexico. The bankruptcy court granted summary judgment

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in favor of Eloisa's former spouse, Matthew Taylor. The bankruptcy court determined that a $50,660.59 debt Eloisa owed to Matthew for overpayment of spousal support was nondischargeable because Eloisa incurred the debt " in connection with a separation agreement" under 11 U.S.C. § 523(a)(15). Matthew's assertion that the debt was nondischargeable under 11 U.S.C. § 523(a)(5) as a " domestic support obligation" was previously dismissed by the bankruptcy court for failure to state a claim. Matthew has filed a cross appeal from that ruling and from the BAP's ruling that neither it, nor the bankruptcy court, had authority under the parties' divorce settlement agreement to award Matthew attorney fees that he incurred during the bankruptcy proceeding. Exercising jurisdiction under 28 U.S.C. § 158(d), we affirm the bankruptcy court's ruling that the debt is nondischargeable under § 523(a)(15). As regards Matthew's cross appeal, we affirm both the bankruptcy court's ruling that the debt was not excepted from discharge under § 523(a)(5), and the BAP's denial of Matthew's request for attorney fees.

I

In 1988, Eloisa and Matthew Taylor were married in Albuquerque, New Mexico. In 2005, they divorced and entered into a Marital Settlement Agreement (" MSA" ). A circuit court in Fairfax County, Virginia entered a final decree of divorce on September 22, 2005, which incorporated the MSA. As part of the final decree, the Virginia circuit court ordered Matthew to pay $2,500 per month to Eloisa as spousal support, said payments to begin on August 1, 2005, and to continue until " the death of either party, or the remarriage of [Eloisa], or after" ten years of payments, " whichever event first ... occurred." Aplt.App. at 43. The final decree also stated that the spousal support obligation was governed by Va.Code § 20-109, and that the Virginia circuit court retained jurisdiction to enter orders to implement the Taylors' agreement.

On April 21, 2009, Matthew moved to terminate spousal support in the Virginia circuit court, arguing that Eloisa had been living with a man for the past two years and that the two were in a marriage-like relationship. Matthew claimed that Eloisa's cohabitation should result in the termination of his spousal support obligation under the divorce decree pursuant to Va.Code § 20-109. [1] On October 4, 2010, after conducting a trial on the matter, the Virginia circuit court agreed with Matthew and retroactively terminated his spousal support obligation. Specifically, the Virginia circuit court ordered Eloisa to repay $40,660.59 in overpaid spousal support payments, plus $10,000.00 for Matthew's attorney fees incurred in prosecuting the motion for termination. Accordingly, the Virginia circuit court entered a judgment against Eloisa for $50,660.59.

On November 22, 2010, Eloisa filed for bankruptcy under Chapter 7 of the Bankruptcy Code in the United States Bankruptcy Court for the District of New Mexico. On January 26, 2011, Matthew filed a complaint objecting to the dischargeability of the $50,660.59 judgment, and initiated an adversary proceeding. Fed. Bankr.R. 7001(6). In his complaint, Matthew alleged that the overpayment debt was not

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dischargeable and he cited as support three different Bankruptcy Code provisions. First, he argued that the overpayment debt constituted a debt to a former spouse incurred by the debtor " in connection with a separation agreement" under 11 U.S.C. § 523(a)(15). Second, Matthew argued that the overpayment debt constituted a " domestic support obligation" under 11 U.S.C. § 523(a)(5). Finally, he argued that Eloisa knew that she was not entitled to spousal support under Va.Code § 20-109, and that her acceptance of such support constituted fraud under 11 U.S.C. § 523(a)(2)(A).[2] Eloisa moved to dismiss Matthew's complaint. The bankruptcy court granted in part Eloisa's motion by rejecting Matthew's reliance on § 523(a)(5) and § 523(a)(2)(A). However, the bankruptcy court denied Eloisa's motion to dismiss as regards Matthew's claim that § 523(a)(15) applied to the overpayment debt and was therefore nondischargeable.

Thereafter, both Matthew and Eloisa filed motions for summary judgment regarding the applicability of § 523(a)(15) to the dischargeability issue. Matthew's motion also sought an award of attorney fees incurred during the adversary proceeding pursuant to the parties' MSA. After deciding that the overpayment debt fell within the plain language of § 523(a)(15), the bankruptcy court noted that the legislative history likewise supported a conclusion that the overpayment debt was nondischargeable. Accordingly, the bankruptcy court granted Matthew's motion for summary judgment and denied Eloisa's motion for summary judgment. The bankruptcy court did not address Matthew's claim that he was entitled to attorney fees incurred while pursuing the bankruptcy adversary complaint.

Both parties appealed to the BAP. The BAP affirmed the bankruptcy court's ruling that the overpayment debt was not a " domestic support obligation" under § 523(a)(5), as well as the bankruptcy court's ruling that the overpayment debt did qualify for an exception from discharge under § 523(a)(15). Finally, the BAP ruled that neither it nor the bankruptcy court had authority to award attorney fees under the MSA's fee-shifting agreement. Eloisa appeals the bankruptcy court's summary judgment ruling that the overpayment debt is nondischargeable under § 523(a)(15); Matthew cross-appeals the bankruptcy court's dismissal of his § 523(a)(5) claim and the BAP's ruling on attorney fees.

II

" Although this appeal is from a decision by the BAP, we review only the Bankruptcy Court's decision." Miller v. Deutsche Bank Nat'l Trust Co. (In re Miller), 666 F.3d 1255, 1260 (10th Cir.2012) (quotation omitted). " We review matters of law de novo, and we review factual findings made by the bankruptcy court for clear error." Id. (quotation omitted). In so doing, we " treat[ ] the BAP as a subordinate appellate tribunal whose rulings may be persuasive." Cohen v. Borgman (In re Borgman), 698 F.3d 1255, 1259 (10th Cir.2012).

Ordinarily, " [w]hether an obligation to a former spouse is actually in the nature of support is a factual question subject to a clearly erroneous standard of review." Sampson v. Sampson (In re Sampson), 997 F.2d 717, 721 (10th Cir.1993). Because the parties argue that the bankruptcy court erred in its interpretation of the

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Bankruptcy Code, however, we review those legal rulings de novo. See Search Mkt. Direct Inc. v. Jubber (In re Paige), 685 F.3d 1160, 1178 (10th Cir.2012) (" When a lower court's factual findings are premised on improper legal standards or on proper ones improperly applied, they are not entitled to the protection of the clearly erroneous standard, but are subject to de novo review." (alteration and quotation omitted)).

III

One of the principal purposes of the Bankruptcy Code is to grant insolvent debtors a " fresh start." Grogan v. Garner, 498 U.S. 279, 286-87, 111 S.Ct. 654, 112 L.Ed.2d 755 (1991). However, by providing limited exceptions to discharge, the Bankruptcy Code recognizes that certain interests outweigh the " fresh start" for the debtor. Id. Two provisions of the Bankruptcy Code except from discharge debts arising out of obligations to the family: § 523(a)(5) excepts from discharge any " domestic support obligation," as defined in the Bankruptcy Code; and § 523(a)(15) excepts from discharge obligations arising in connection with a divorce proceeding or settlement agreement. 11 U.S.C. § 523(a)(5), (15). " These provisions reflect the congressional preference for the rights of spouses to alimony, maintenance or support over the rights of debtors to a ‘ fresh start’ free of debts." See Gianakas v. Gianakas (In re Gianakas), 917 F.2d 759, 761 (3d Cir.1990); see also Miller v. Gentry (In re Miller), 55 F.3d 1487, 1489 (10th Cir.1995) (" The policy underlying § 523(a)(5), however, favors enforcement of familial support obligations over a ‘ fresh start’ for the debtor." ). Because § 523(a)(15) will apply to a debt only if that debt does not qualify as a " domestic support obligation" under § 523(a)(5), we first address whether the overpayment debt at issue qualifies as a " domestic support obligation." [3]

A. Section 523(a)(5)

i) § 523(a)(5) Background

Before Congress amended the Bankruptcy Code in 2005, § 523(a)(5) stated that a bankruptcy court may deny a ...


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