Opinion
No. 03-13331, Adversary Proceeding No. 03-1138.
March 29, 2007
Rex A. Wagner, Cleveland, Tennessee, for the Plaintiff, Peggy Hamby.
Rodney Craig Miller, Cleveland, Tennessee, for the Defendant, Louis William Hamby.
MEMORANDUM
This matter has been under advisement for some time. The delay can be partly explained by the court's expectation of a post-trial settlement. The parties informed the court that they were working out a settlement, but none was ever presented to the court. Therefore, the court will render an opinion based on the facts proved at the trial.
The plaintiff, Peggy Ruth Hamby, and the defendant, Louis William Hamby, were divorced in 1996. The divorce decree ordered the sale of a house and lot in Georgia and provided that the Hambys would share the sale proceeds equally after paying certain debts. Mr. Hamby sold the house in 1999 and used the sale proceeds to pay debts as required by the divorce decree. He had about $60,000 left over but did not pay any of it to Ms. Hamby. When Ms. Hamby found out, she filed a petition in the state court to have Mr. Hamby held in contempt of court for disobeying the divorce decree. The state court judge made an oral ruling in Ms. Hamby's favor, but the written judgment was not entered until after Mr. Hamby filed bankruptcy. The bankruptcy filing caused Ms. Hamby to sue Mr. Hamby in this court. The complaint alleges that Mr. Hamby owes her a debt for her share of the sale proceeds, and the debt cannot be discharged in Mr. Hamby's bankruptcy.
Bankruptcy law provides that some debts are excepted from the discharge of debts. Ms. Hamby's complaint relies on three exceptions. Two of the exceptions deal with debts arising from a divorce. 11 U.S.C. § 523(a)(5), (15). At the trial, however, Ms. Hamby's lawyer stated that she was relying on the third exception, § 523(a)(6). It applies to debts for willful and malicious injury to another person or another person's property. Injury includes conversion of another person's property. 11 U.S.C. § 523(a)(6); Financeamerica Corp. v. Ricker (In re Ricker), 26 B.R. 862 (Bankr. E. D. Tenn. 1983). The complaint alleges that Mr. Hamby's failure to pay Ms. Hamby her share of the sale proceeds was a willful and malicious conversion of her property or at least a willful and malicious injury of some kind.
Mr. Hamby does not deny that the divorce decree required him to pay Ms. Hamby half of the net sale proceeds, meaning the proceeds after paying debts as required by the divorce decree. He contends that he was entitled to collect other claims from the net sale proceeds before paying Ms. Hamby, and collection of the other claims used up all the net sale proceeds.
The other claims Mr. Hamby collected from the net sale proceeds can be described as the reimbursement claim and the property expense claim. The reimbursement claim is based on Mr. Hamby's payment of debts that the divorce decree required Ms. Hamby to pay. The property expense claim is made up of expenses Mr. Hamby incurred for maintaining and improving the house and lot in Georgia after the divorce and before the sale. Mr. Hamby argues in effect that Ms. Hamby was liable to him for half of the property expenses, and he could collect from her share of the sale proceeds.
Even if Mr. Hamby was not legally entitled to collect these claims from the net sale proceeds, the argument is still relevant because Mr. Hamby's intent is relevant. Mr. Hamby may be able to prove that his failure to pay Ms. Hamby was not willful and malicious because he honestly believed he was entitled to collect these claims from the net sale proceeds.
In addition to the facts already stated, the court finds the following facts.
The Hambys were divorced in September 1996 by a decree entered in the Chancery Court of Bradley County, Tennessee. They had one minor child, but the decree did not require either of them to pay child support because custody was joint or shared. The decree expressly provided, however, that they would be equally and jointly liable for the child's medical expenses that were not covered by insurance.
The division of personal property appears to be irrelevant to this dispute. Nevertheless, the court notes the original disposition of two boats because it was subsequently changed as the result of Ms. Hamby's petition for contempt. The decree awarded a pontoon boat to the debtor and ordered the sale of a cabin cruiser with the profit to be divided equally between Mr. and Ms. Hamby.
As to the sale of the house, the divorce decree provided:
[T]he real property located at 2195 Lake Capri Road, Conyers, Georgia, shall be sold with the proceeds going first to pay off any debt existing on the property and second to pay off any other marital debts of the parties. After all debts are paid, any and all profit is to be divided equally between the parties.
Next, the divorce decree dealt with the payment of debts owed by either or both parties. The decree provided that "any and all obligations individually incurred by either of the parties herein shall be his or her own responsibility and obligation and the other spouse shall be forever held harmless as to the payment of the same."
Specifically, Husband shall be solely responsible for one-half (½) of the marital debts. The amount Husband is to pay is as follows: Suntrust Bank for the mortgage on the property in Conyers, Georgia ($11,500.00); GMAC for the repossessed 1994 Jeep Cherokee ($1600.32); Snapping Shoals for utility bill for Georgia home ($92.50); Fingerhut ($155.06); Bell South ($397.16); Jane Howell, M.D. for medical bill on the minor child ($532.50); Capital Consumer for Macy's bill ($543.52); Beneficial National Bank for the Rhode's furniture bill ($598.77); Charter Winds Hospital for medical bill on minor child ($550.00); and Rockdale Hospital for the Husband's medical bill ($250.00).
The next paragraph of the decree made Ms. Hamby solely responsible for the other half of the same debts. It replaced "Specifically" with "The" to begin the sentence, substituted "Wife" for "Husband" every time it appeared, and inserted "the remaining" before "one-half". The list of creditors and amounts was the same.
The divided marital debts are listed below with the totals, instead of the one-half that each party was solely responsible for paying.
Suntrust Bank $23,000.00 (mortgage on house and lot in Conyers, Georgia) GMAC $ 3,200.64 (repossessed 1994 Jeep Cherokee) Snapping Shoals $ 185.00 (utility bill for Georgia home) Fingerhut $ 310.12 BellSouth $ 794.32 Jane Howell, M.D. $ 1,065.00 (child's medical bill) Capital Consumer $ 1,087.04 (Macy's bill) Beneficial National Bank $ 1,197.54 (Rhode's furniture bill) Charter Winds Hospital $ 1,100.00 (child's medical bill) Rockdale Hospital $ 500.00 (debtor's medical bill) TOTAL $32,439.66 Mr. Hamby testified that he paid all of the divided marital debts, and Ms. Hamby paid nothing. Ms. Hamby admitted that she did not pay anything on these debts despite the divorce decree. She explained her failure to pay by saying that the debts were supposed to be paid from the proceeds of selling the house.Mr. Hamby sold the property in Georgia for $82,000 according to the closing statement dated April 1, 1999. The closing statement shows the following deductions from the sale price:
Settlement charges to seller $ 3,910.00 Payoff of first mortgage loan $16,617.15 to Suntrust Bank Express Payoff — Federal Express $ 18.00 County taxes 1/01 to 4/01 $ 97.32 TOTAL $20,639.67 The balance of $61,360.33 was paid to Mr. Hamby, but he did not pay any of the money to Ms. Hamby. He testified that he used the money to reimburse himself and his mother and sister and to pay burial expenses for his mother.Mr. Hamby argues that he was justified in reimbursing himself from the sale proceeds for maintaining, repairing, and improving the house after the divorce and before the sale, or at the least, he was justified in believing that he could reimburse himself without Ms. Hamby's agreement or the chancery court's approval. The evidence includes Mr. Hamby's testimony and two handwritten lists. The following expenses are on the first list.
Mortgage $18,001.36 Snapping Shoals (utilities) $ 2,286.99 Insurance $ 2,000.00 Taxes $ 2,439.21 Enclose stairwell $ 1,250.00 Wallpaper $ 265.00 Haul spread gravel $ 465.00 Gravel $ 112.83 Paint $ 207.04 Labor, roof $ 2,300.00 Shingles $ 242.29 Materials $ 245.75 Ad in paper $ 36.60 Rogers Lake land fill $ 150.00 Paint inside $ 1,050.00 Basement $ 1,089.90 Gas food $ 1,415.48 Carpet $ 663.77 Lay carpet $ 250.00 3 interior doors $ 125.00 Miscellaneous $ 64.53 West Bldg. $ 924.47 Tile bath kitchen $ 700.00 Paint outside $ 1,424.50 Home Depot $ 1,249.61 P.O. Box 3 years $ 124.00 Rockdale County $ 147.00 Supplies $ 599.74 Groceries $ 2,100.33 Pond $ 239.00 2 scoops dirt $ 25.00 Loan $ 7,000.00 Loan $ 5,500.00 Labor $ 954.00 Labor $ 2,800.00 Labor $ 1,084.00 TOTAL $59,532.40 The total given on Mr. Hamby's list is about $135 more, but the difference is not significant for purposes of this opinion.The second list of expenses includes some items not related to the Georgia property. It includes some of the divided marital debts that were paid in full by Mr. Hamby. Since the divorce decree dealt specifically with payment of those debts, they should be in a separate category from the property expenses that were not mentioned in the divorce decree. Therefore, Mr. Hamby's payments on Ms. Hamby's half of the divided debts are not included in the court's list that follows. Mr. Hamby's second list also refers to payments to Ms. Hamby for the benefit of the their daughter. Mr. Hamby may not have included them in his total of the second list. In any event, since the divorce decree specifically dealt with the liability for such debts, they are also in a different category and are not included in the court's list.
The court has omitted several other items from Mr. Hamby's second list: (1) a $239 charge related to the pond since it appears to be included in the first list; (2) payments of $1,500 to French G. and $1,000 to Fred. V. without any explanation of the work they did; (3) Roto-Rooter and repair charges for January 1997 since they are marked as having been recovered from the rent; (4) a charge of $350 for wicker since the only wicker furniture mentioned in the divorce decree was awarded to Ms. Hamby; (5) a charge of $600 for unpaid rent since the court knows of no reason why Ms. Hamby would be liable for unpaid house rent; (6) motel charges totaling $1,150.00 since there is no explanation of who made the charges or why; (7) a $400 charge for a trailer since it seems to be an allegation that Ms. Hamby took a trailer belonging to Mr. Hamby after the divorce; (8) a $375 charge for a raft for the same reason. These changes leave the following charges from Mr. Hamby's second list.
Trash clean-up hauling $ 1,100.00 Mow grass 1997 $ 640.00 Mow grass 1998 $ 1,200.00 Mow grass 1999 $ 200.00 Summer cleaning $ 600.00 Stove $ 600.00 TOTAL $ 4,340.00 All of these charges relate to the property that was sold, or the court assumes they do.The total of the two lists is $63,872.40. Half of that amount would have been more than Ms. Hamby's half of the sale proceeds. Mr. Hamby testified that he asked Ms. Hamby to help with these house expenses after the divorce, but she never did and even asked him for money at times. He also testified that he contacted Ms. Hamby about the sale. When asked where he got the money to pay these expenses, Mr. Hamby stated that he used a lump sum disability award and social security payments.
Mr. Hamby testified in support of both lists of expenses. He explained that many of the repairs were needed because the tenants practically demolished the house. The photographs making up exhibit 6 show both damages and the accumulation of junk. Mr. Hamby testified that the photographs accurately depict the damage done by the tenants. According to Mr. Hamby, the tenants had a rent to own agreement, and Ms. Hamby knew about it, perhaps because she knew the mother of one of the tenants.
When asked what happened to the house after the divorce, Ms. Hamby testified that it was rented until they could sell it. As to the details of what happened, she expressed a general lack of knowledge. She stated that she lost contact with Mr. Hamby after the divorce, he did not ask her for reimbursement of expenses related to the house, and she did not contribute to its upkeep. She denied knowing about the damage done by the tenants and denied being at the house when a "For Sale" sign was posted. She denied learning of the sale from their daughter because their daughter had no contact with Mr. Hamby for years after the divorce. Ms. Hamby stated that she learned of the sale from her son after Mr. Hamby's son told him. Finally, Ms. Hamby testified that her lack of funds after the divorce caused her to live with her son and her daughter; she could not afford to live separately. Ms. Hamby did not deny entering the house sometime after the divorce and before the sale. She stated that she still had an interest in the property and a key to the house.
Shortly after the sale of the house, Mr. Hamby negotiated the purchase of a house in McMinn County, Tennessee. The deed is dated May 6, 1999 and was registered on June 22, 1999. The deed transferred the property to Mr. Hamby's granddaughter because he insisted on the transfer being made to her. The deed stated the price or value of the property as $59,500, and Mr. Hamby agreed with that value. According to Mr. Hamby, he provided part of the purchase money, and his daughter provided $20,000 to $25,000. Mr. Hamby lives in the house and keeps it up.
Sometime in 1999, Ms. Hamby filed the petition in the chancery court to hold Mr. Hamby in contempt for failing to pay her one-half of the net sale proceeds. Mr. Hamby did not ask the chancery court to modify the divorce decree so that he could collect either the reimbursement claim or the property expenses from the sale proceeds.
Mr. Hamby had control of his mother's property before she died, and in April 2000 sold some subdivision property that she owned for $28,500. He testified that part of the money from the sale went into a trust account for the grandchildren.
In 2001 Mr. Hamby's granddaughter transferred the McMinn County house to Mr. Hamby in trust for his grandson. Mr. Hamby testified that his daughter allows him to live there without paying rent because he has no other place to live.
With regard to Ms. Hamby's contempt petition in the chancery court, she and Mr. Hamby agreed to an interim order that the chancery court entered on December 11, 2002. The agreed interim order:
(1) directed Mr. Hamby to give Ms. Hamby a full written accounting with regard to the house that was sold;
(2) directed the attorney who handled the sale closing to provide copies of the closing documents to the lawyers for Mr. and Ms. Hamby;
(3) provided for a hearing at which the court would receive Mr. Hamby's accounting;
(4) stated that Ms. Hamby "is entitled to and is, therefore, granted one-half (½) of the proceeds from the sale" of Georgia property;
(5) modified the divorce decree to provide that Ms. Hamby would have ownership and possession of the parties' boat [apparently the cruiser];
(6) provided that all issues, including the questions of contempt and distribution of sale proceeds, would be held in abeyance pending further orders of the court.
The chancery court held a hearing on the remaining issues on April 29, 2003. At the end of the hearing, the chancellor orally ruled in favor of Ms. Hamby. On May 14, 2003, Mr. Hamby filed his bankruptcy case. On July 9, 2003, the chancery court entered on the docket a written order in Ms. Hamby's favor. The written order found Mr. Hamby to be in willful contempt of the chancery court's prior orders, specifically because Mr. Hamby had "wrongfully dissipated Plaintiff's share of her equitable division of the parties' marital assets." The written order included a judgment for Ms. Hamby and against Mr. Hamby in the amount of $30,680.00 as her equitable share of the marital property.
DISCUSSION
Two questions are raised by the chancery court's actions on Ms. Hamby's petition for contempt. Did the chancery court decide any issue that is also an issue in this proceeding? If so, is the chancery court's decision binding on this court? This court must give a decision by the chancery court the same effect that it would have under Tennessee law in another Tennessee court. In other words, this court applies the Tennessee law of collateral estoppel to determine the effect of the chancery court's actions. 28 U.S.C. § 1738; Bay Area Factors v. Calvert (In re Calvert), 105 F.3d 315 (6th Cir. 1997).
The chancery court entered an agreed interim order which provided that Ms. Hamby was entitled to half of the net sale proceeds. That declaration was not a decision against Mr. Hamby on the issue of whether he could collect his alleged claims from the sale proceeds. The agreed interim order only set up a process for a later decision on those issues. In this regard, the order required Mr. Hamby to provide an accounting and set a future hearing on the questions of contempt and distribution of the proceeds. An agreed order has collateral estoppel effect to the extent intended by the parties. Boyce v. Stanton, 83 Tenn. 346 (1885); Third National Bank v. Scribner, 212 Tenn. 400, 370 S.W.2d 482 (1963); Long v. Kirby-Smith, 40 Tenn.App. 446, 292 S.W.2d 216 (1956). The agreed interim order was not intended to be and was not a final decision on the question of whether Mr. Hamby could collect his claims from the net sale proceeds without Ms. Hamby's agreement or the chancery court's approval.
Furthermore, only a final order could collaterally estop Mr. Hamby from litigating his right to collect from the sale proceeds, and the agreed interim order was not a final order in that sense. Beaty v. McGraw, 15 S.W.3d 819 (Tenn.Ct.App. 1998); See Richardson v. Tennessee Board of Dentistry, 913 S.W.2d 446 (Tenn. 1995); Humphreys v. BIC Corp., 923 F.2d 854, 1991 WL 4705 (6th Cir. 1991) (Table); Tenn. R. Civ. P. 54.02; Tenn. R. App. P. 3, 9 10.
Before Mr. Hamby filed bankruptcy, the chancery court held a hearing and concluded it with an oral ruling against Mr. Hamby. The chancellor stated that Mr. Hamby was liable to Ms. Hamby for half the net sale proceeds and that he committed contempt by not paying Ms. Hamby as ordered in the divorce decree. In other words, the chancellor ruled against Mr. Hamby's argument that he could collect his claims from the sale proceeds. Under the Tennessee law of collateral estoppel, however, the chancellor's oral ruling was not a final decision. The oral ruling would not be binding on another Tennessee court, and as a result, it is not binding on this court. 28 U.S.C. § 1738; Frank Rudy Heirs Associates v. Sholodge, Inc., 967 S.W.2d 810 (Tenn.Ct.App. 1997).
After Mr. Hamby filed bankruptcy, the chancery court docketed a written order in accord with the chancellor's oral ruling. The question is whether the written order is binding on this court. When Mr. Hamby filed bankruptcy, the bankruptcy code immediately imposed a broad statutory injunction known as the automatic stay. If entry of the order by the chancery court violated the automatic stay, the order is void. 11 U.S.C. § 362(a); Smith v. First America Bank (In re Smith), 876 F.2d 524 (6th Cir. 1989) (void); Easley v. Pettibone Michigan Corp., 990 F.2d 905 (6th Cir. 1993) (recognizing equitable exceptions to voidness rule).
Ms. Hamby's contempt petition in the chancery court was an attempt to collect a debt for half of the net sale proceeds. At least two provisions of the automatic stay enjoined entry of the written order by the chancery court. 11 U.S.C. § 362(a)(1), (6). Entry of the order by the chancery court violated the automatic stay unless one or more of the stay exceptions applied. Brooks v. Brooks (In re Brooks), 2007 WL 540786, Adv. Proc. No. 03-3194, Bankr. No. 03-34419 (Bankr. E. D. Tenn. Feb. 15, 2007) (Judge Stair).
The automatic stay included an exception for some actions aimed at establishing, modifying, or collecting alimony, maintenance, or support. 11 U.S.C. § 363(b)(2). At the trial in this court, Ms. Hamby's lawyer announced that she was no longer relying on the discharge exception for alimony, maintenance, and support debts. That raises the question of whether Ms. Hamby can still rely on the automatic stay exception as to alimony, maintenance, or support debts. Compare In re Sutton, 250 B.R. 771 (Bankr. S.D. Fla. 2000) and Moberly v. Johnston (In re Moberly), 266 B.R. 187 (Bankr. N. D. Cal. 2001). The court need not answer that question of law because the evidence did not prove that the automatic stay exception applied.
The evidence did not show that Ms. Hamby's share of the net sale proceeds was intended to be alimony, maintenance, or support. Nothing in the divorce decree suggests that it was. Sorah v. Sorah (In re Sorah), 163 F.3d 397 (6th Cir. 1998). Indeed, the divorce decree suggests just the opposite. Ms. Hamby testified that lack of money after the divorce prevented her from living on her own, but that testimony was not enough to prove that her share of the sale proceeds was intended to be alimony, maintenance, or support. In summary, the evidence did not show that the chancery court's entry of the written order came within the automatic stay exception as to alimony, maintenance, or support debts.
None of the other exceptions appears to apply. The chancery court's order is void because it was entered in violation of the automatic stay. Since the order is void, it is not binding on this court under the Tennessee law of collateral estoppel. See State Department of Human Services v. Gouvitsa, 735 S.W.2d 452 (Tenn.Ct.App. 1987); Phillips v. Tidwell, 26 Tenn.App. 543, 174 S.W.2d 472 (1942); LaBarge v. Vierkant (In re Vierkant), 240 B.R. 317 (8th Cir. B.A.P. 1999); Sheriden Woods Health Care Center, Inc. v. Floyd (In re Floyd), 2007 WL 316818, Adv. Proc. No. 06-2009, Bankr. No. 05-24385 (Bankr. D. Conn. Feb. 1, 2007). The court is not bound by the chancery court's decision that Mr. Hamby willfully and wrongfully took Ms. Hamby's share of the sale proceeds for his own use. This court is also not bound by the chancery court's implicit decision that Mr. Hamby was not entitled to collect any of his claims from the sale proceeds before paying Ms. Hamby. The court is free to interpret the divorce decree and decide whether the facts show that Mr. Hamby willfully and maliciously took Ms. Hamby's share of the sale proceeds. This brings the court to Mr. Hamby's argument that he could collect his alleged claims from sale proceeds without the approval of the chancery court or Ms. Hamby.
The court begins with Mr. Hamby's alleged reimbursement claim under the "divided debts" provision of the divorce decree. The decree ordered Ms. Hamby and Mr. Hamby to hold each other harmless as to debts "individually incurred" — "specifically" including half of the divided debts. The hold harmless clause gives Mr. Hamby a reimbursement claim against Ms. Hamby for the amount he paid on her half of the divided debts. McCracken v. LaRue (In re LaRue), 204 B.R. 531 (Bankr. E. D. Tenn. 1997); White v. White (In re White), 55 B.R. 878 (Bankr. E. D. Tenn. 1985); Gotten v. Gotten, 748 S.W.2d 430 (Tenn.Ct.App. 1987); Wright v. Wright, 567 S.W.2d 371 (Mo.Ct.App. 1978).
The description of the divided debts as "individually incurred" raises the possibility that the divorce decree created two categories of divided debts — some individually incurred and some not, some subject to the hold harmless clause and some not. This possible interpretation of the decree must be rejected, however, because the decree not only fails to define "individually incurred" but also identifies all the divided debts as individually incurred. Furthermore, the subsequent paragraphs of the decree support a hold harmless obligation as to all the divided debts. Those paragraphs made each party "solely responsible" for half of the divided debts. The "solely responsible" wording amounted to repeating the earlier hold harmless obligation, or it independently created a hold harmless obligation as to all the divided debts. Argento v. Argento, 758 N.Y.S.2d 166 (N.Y.App.Div. 2003); Whiteside v. Whiteside, 1998 WL 237715, No. 03A01-9707-CV-00272 (Tenn.Ct.App. May 7, 1998).
The divorce decree gave Mr. Hamby a reimbursement claim against Ms. Hamby for the amount he paid on the divided debts in excess of his half because those payments applied to her half of the divided debts. Mr. Hamby collected this reimbursement claim from the sale proceeds without the approval of the chancery court or Ms. Hamby's agreement. This brings up the question of how the divorce decree required or allowed the sale proceeds to be distributed.
A preliminary question is whether the decree even required use of the sale proceeds to pay the balance of the divided debts. The decree provided for payment from the sale proceeds of "any debt existing on the property" and then "any other marital debt of the parties." The divorce decree subsequently identified the divided debts as marital debts. Furthermore, when the sale provision referred to other marital debts to be paid from the proceeds, it could not have meant marital debts other than those in a preceding list of divided debts because that list came later in the decree. Thus, the decree provided that the sale proceeds would be used to pay all marital debts of the parties, including the balance of the divided debts at the time of the distribution.
The decree required an even split of the sale proceeds after paying debts on the property and remaining marital debts, including the balance of the divided debts. The decree did not mention normal closing costs, but the court assumes the decree allowed them to be paid from the sale proceeds. Argento v. Argento, 758 N.Y.S.2d 166 (N. Y. App. Div. 2003). Since the decree did not allow payment of any other claims or debts from the sale proceeds, the court assumes for the moment that the decree prohibited it. The following table uses hypothetical amounts to illustrate distribution strictly in accordance with these rules.
$80,000 — proceeds to pay balance of divided debts distribute to parties $20,000 — divided debts at time of divorce $15,000 — payments on divided debts after divorce $5,000 — balance of divided debts to be paid from proceeds $75,000 — proceeds to be divided evenly between parties Paid on Divided Debts Share of Net Distribution Before Distribution Proceeds Husband $ 8,000 $37,500 $29,500 Wife $ 7,000 $37,500 $30,500 Husband $10,000 $37,500 $27,500 Wife $ 5,000 $37,500 $32,500 Husband $13,000 $37,500 $24,500 Wife $ 2,000 $37,500 $35,500 The net distribution is the focal point of the table. Each party received $37,500 from the sale proceeds, but the net distribution was that amount reduced by the party's post-divorce payments on the divided debts. In each example, the husband's post-divorce payments exceeded the wife's post-divorce payments. By paying more than the wife, the husband reduced his net distribution and increased her net distribution. In other words, the husband was penalized for paying more on the divided debts after the divorce.In the last example, the husband also has a $3,000 reimbursement claim against the wife because he paid $3,000 more than his half of the divided debts. A different distribution scheme would level out the net distribution and also eliminate any reimbursement claim. Mr. Hamby apparently is not arguing that the divorce decree allowed that kind of adjustment without the chancery court's approval. He argues only that he could collect his reimbursement claim from Ms. Hamby's half of sale proceeds.
In the examples, the distribution would be: (1) pay the $5,000 balance of the divided debts; (2) pay the husband the amount by which his payments on the divided debts exceeded the wife's payments; (3) divide the remainder evenly between the husband and wife.
Collection of a reimbursement claim can be illustrated by using the last example in the table. If the husband collected the $3,000 reimbursement claim from the wife's half of the sale proceeds, she would have received $34,500 ($37,500 — $3,000), and he would have received $40,500 ($37,500 + $3,000).
Before setting out the table, the court assumed that the divorce decree prohibited payment from the sale proceeds of any claims or debts other than those specifically set out and normal closing costs. The question now is whether that assumption was a correct interpretation of the divorce decree. Did the decree prohibit Mr. Hamby from collecting his reimbursement claim from the sale proceeds without Ms. Hamby's agreement or the chancery court's approval?
The divorce decree certainly did not require payment of the reimbursement claim from the sale proceeds. The decree did not set up a process for the chancery court or a trustee or either lawyer to handle the sale proceeds. It assumed the parties would do it. The decree did not explicitly allow any adjustment of the distribution in light of the difference between the parties' payments on the divided debts after the divorce. This suggests that the chancery court, the parties, and the lawyers expected two possible courses of action if either party thought that distribution strictly in accordance with the decree would be unfair. The Hambys could work out the dispute and agree to a different distribution, or one of them could ask the chancery court for a decision on the dispute. Otherwise, the proceeds were to be distributed strictly in accordance with the divorce decree. This interpretation of the divorce decree does not make it unreasonable. A divorce decree attempts a fair division of debts and property. The court granting the divorce assumes that a party who believes the division has turned out to be unfair will return to court to obtain an adjustment. Mowery v. Mowery, 50 Tenn.App. 648, 363 S.W.2d 405 (1962).
Likewise, the decree would have been reasonable if it had expressly denied Mr. Hamby the right to collect the reimbursement claim from the sale proceeds without obtaining Ms. Hamby's agreement or the chancery court's approval. That arrangement would not have contradicted the division of the marital debts. Between Mr. and Ms. Hamby, each one would have remained solely liable for half of the divided debts. Mr. Hamby would have retained his reimbursement claim against Ms. Hamby and could have asked the chancery court to allow collection from the sale proceeds if Ms. Hamby did not agree to it. The divorce decree would have denied Mr. Hamby only an easy method of collecting the reimbursement claim without asking the court.
In summary, the right to collect the reimbursement claim from the sale proceeds, without the chancery court's approval or Ms. Hamby's agreement, was not required to prevent the divorce decree from contradicting itself or even to give it a reasonable interpretation. The parties were bound by the distribution scheme set out in the decree. Since the decree did not provide for payment of the reimbursement claim from the sale proceeds, payment was prohibited unless Ms. Hamby agreed or the chancery court gave prior approval.
A lawyer should have known this, but Mr. Hamby is not a lawyer, and the court must determine whether his intent was willful and malicious. The Supreme Court defined "willful" in Kawaauhau v. Geiger, 523 U.S. 57, 118 S.Ct. 974, 977-978, 140 L.Ed.2d 90 (1998). It includes the intent to cause harm and the intent to perform the act with the belief that the harmful consequences are substantially certain to follow. Markowitz v. Campbell (In re Markowitz), 190 F.3d 455 (6th Cir. 1999); Miller v. J. D. Abrams, Inc. (In re Miller), 156 F.3d 598 (5th Cir. 1998).
Malice under § 523(a)(6) does not require hatred, ill will, or spite toward the victim. McIntyre v. Kavanaugh, 242 U.S. 138, 37 S.Ct. 38, 61 L.Ed. 205 (1916). Malice deals with the debtor's underlying motive for the intent to injure the plaintiff. Self-defense can include the intent to injure the attacker but not malice. Malice does not exist because the person who strikes back in self-defense has a just cause or excuse for striking back — a cause the law recognizes as excusing him from liability. See, e.g., Navistar Financial Corp. v. Stelluti (In re Stelluti), 94 F.3d 84 (2d Cir. 1996); Hagan v. NcNallen (In re McNallen), 62 F.3d 619, 625 (4th Cir. 1995); Vulcan Coals, Inc. v. Howard, 946 F.2d 1226 (6th Cir. 1991); Seven Elves, Inc. v. Eskenazi, 704 F.2d 241 (5th Cir. 1983); but see Miller v. J. D. Abrams, Inc. (In re Miller), 156 F.3d 598, 604-606 (5th Cir. 1998). In summary, malice follows from the finding of willfulness unless the law excuses the debtor from liability because he had a just cause or excuse for intending to harm the plaintiff.
The distribution scheme in the divorce decree appeared to penalize Mr. Hamby for his payments on Ms. Hamby's half of the divided debts unless he could collect the reimbursement claim from the sale proceeds. The court understands Mr. Hamby's thinking that the parts of the divorce decree were intended to work together so that the distribution of the sale proceeds would be rendered fair by taking into account the difference between his and Ms. Hamby's post-divorce payments on the divided debts. Of course, Mr. Hamby knew that taking part of the sale proceeds to collect the reimbursement claim would deprive Ms. Hamby of some proceeds. On the other hand, he was justified in believing it would not cause her any financial harm because it was balanced by his payments on her half of the divided debts, and it also satisfied his reimbursement claim against her, a claim created by the divorce decree. The court concludes that Mr. Hamby did not act willfully and maliciously toward Ms. Hamby or her property when he retained proceeds from the sale to collect his reimbursement claim against her.
The court must determine the amount of any such reimbursement claim. The divided debts other than the mortgage debt totaled $9,439.66. Mr. Hamby paid Ms. Hamby's half of this amount, which was $4,719.83. Mr. Hamby's withholding of that amount did not create a non-dischargeable debt for willful and malicious injury.
The reimbursement calculation is more difficult with regard to the mortgage debt. According to the divorce decree, the total mortgage debt was $23,000. This was probably the principal amount, but the divorce decree is not clear on that point. The question is whether Mr. Hamby paid part of Ms. Hamby's half of the mortgage debt ($11,500). Ms. Hamby's evidence did not disprove or seriously challenge Mr. Hamby's testimony that he paid about $18,000 in mortgage payments after the divorce and before the sale. To finish paying the mortgage debt, the closing agent used about $16,600 from the sale proceeds. Thus, full payment of the mortgage debt required about $34,600. This amount strikes the court as being more than should have been required to pay a principal debt of $23,000 in about 31 months. Nevertheless, the court cannot say that the total amount is mathematically impossible, and the court has no evidence to contradict it.
Mr. Hamby seems to be arguing that he paid the entire mortgage debt, but that argument does not correctly account for the $16,600 paid from the sale proceeds. Ms. Hamby should be treated as having paid half of that amount. This means that Ms. Hamby paid $8,300, and Mr. Hamby paid $26,300 or 76% of the $34,600 actually paid to satisfy the mortgage debt. The court can figure that Mr. Hamby also paid 76% of the $23,000 debt that was divided by the divorce decree. That amounts to $17,480. Thus, Mr. Hamby paid his $11,500 obligation under the divorce decree and $5,980 on Ms. Hamby's half of the divided mortgage debt.
As to this amount, the court reaches the same conclusion it reached with regard to the other divided debts. Mr. Hamby did not act willfully and maliciously in retaining $5,980 from Ms. Hamby's share of the sale proceeds to reimburse him for paying that amount on her half of the mortgage debt. The court will deal later with the amount in excess of $23,000 that was required to pay the mortgage debt.
First, the court will deal with the question of whether its reasoning with regard to the reimbursement claim applies to the property expenses that Mr. Hamby collected from the sale proceeds. The divorce decree created Mr. Hamby's reimbursement claim against Ms. Hamby to the extent he paid her share of the divided debts, and the decree provided for paying the remainder of the divided debts from the sale proceeds. Collecting the reimbursement claim from the sale proceeds made these two provisions work together as Mr. Hamby might have expected. On the other hand, the divorce decree did not attempt to arrange liability for the property expenses between Mr. and Ms. Hamby. The divorce decree also did not provide for payment of the property expenses from the sale proceeds. Indeed, the decree did not even imply any arrangement of liability for the property expenses. Mr. Hamby cannot justify collecting the property expenses from the sale proceeds without court approval on the theory that the divorce decree provided for it or implied it.
Furthermore, the court is not convinced that allowing Mr. Hamby to collect the property expenses from the sale proceeds was demanded by fairness or that Mr. Hamby could have honestly seen it as justified by the need for fairness. The divorce decree did not specifically give Mr. Hamby control of the property, but the evidence leaves no doubt that he had control. The testimony also suggests that both parties expected him to have control of the property. In this regard, Mr. Hamby apparently thought it was important to prove that Ms. Hamby committed a crime by entering the house after the divorce. Of course, Ms. Hamby claimed that she could not have trespassed because she still had an ownership interest in the property and still had a key to the house. The important point to be drawn from this argument is Mr. Hamby's belief that he had control of the property to the exclusion of Ms. Hamby. Mr. Hamby admitted living in the house at times. As far as the court knows, he collected all the rent when the house was rented after the divorce. If Mr. Hamby's control of the property caused him to incur expenses as if he were the sole owner, he could recover or offset those expenses by collecting rent from tenants or by occupying the house rent-free. Imposing property expenses on the ex-spouse who has control of the property and receives the benefits of control is not a patently unfair result. Compare Flengas v. Flengas, 1997 WL 408780, No. 03A01-9703-CV-00088 (Tenn.Ct.App. Jul. 23, 1997) and Barber v. Barber, 1987 WL 15522 C/ANo. 109 (Tenn.Ct.App. Aug. 13, 1987).
Likewise, Mr. Hamby apparently controlled the kind of sale and the time of sale. The sooner he made a cash sale of the property, the fewer expenses he was likely to incur. The evidence showed that the tenants did a substantial amount of damage to the property in the long period between the divorce and the sale. Mr. Hamby had control of the property at the time and obviously did not act quickly enough to prevent or reduce the damages by having the tenants evicted.
The supposed fairness of allowing Mr. Hamby to collect many of the property expenses from the sale proceeds amounts to self-serving hindsight by Mr. Hamby. He had control of the property, failed to be a good steward, and decided to make up his loss by taking Ms. Hamby's share of the sale proceeds without asking her or the chancery court. Since the divorce decree did not mention unexpected repair expenses, Mr. Hamby should have asked the chancery court to allow him to collect from the sale proceeds. His failure to do so suggests that he understood the weakness of the fairness argument.
Likewise, Mr. Hamby's subsequent actions suggest that he realized the wrongfulness of taking the sale proceeds to collect the property expenses without regard to Ms. Hamby's rights or the chancery court's jurisdiction. He testified that when he received the sale proceeds, he was out of money. That means he must have used sale proceeds to buy the house in McMinn County. He insisted that the house be titled to his granddaughter, and it was. The house was subsequently transferred to Mr. Hamby as trustee for his grandson. He has lived in the house and continues to live in it without paying any rent, but he does provide some upkeep. These events strike the court as a classic example of a common pattern of wrongdoing: a person has control of money and knows it is subject to someone else's legitimate claim, but he uses the money to buy property to benefit himself or his family and structures the transaction to protect the property from a claim by the other person who had rights in the money.
Of course, a person may honestly acquire and attempt to protect property for the benefit of children and grandchildren. The transaction is necessarily suspicious, however, when he acquires the property with money that was subject to an obvious and legitimate claim by another person.
The question is whether Mr. Hamby acted willfully and maliciously when he collected the property expenses from the sale proceeds. Mr. Hamby must have known that the divorce decree did not require, allow, or even imply a right to collect the property expenses from the sale proceeds. He also had to know that the divorce decree did not give him a claim against Ms. Hamby for a share of the property expenses. Likewise, Mr. Hamby must have known that he needed the chancery court's approval to collect from the sale proceeds. In summary, Mr. Hamby knew that Ms. Hamby was entitled to the money under the divorce decree. As a result, Mr. Hamby knew that taking the money to collect the property expenses would cause harm to Ms. Hamby by depriving her of the money to which she was entitled. He took the money anyway, even though he had no legal justification for doing so without the chancery court's approval. Mr. Hamby willfully and maliciously caused harm to Ms. Hamby or her property to the extent he retained proceeds of the sale to collect the property expenses. Sateren v. Sateren (In re Sateren), 183 B.R. 576 (Bankr. D. N. D. 1995); Richard v. Daugherty (In re Daugherty), 179 B.R. 316 (Bankr. M. D. Fla. 1995); Mowery v. Mowery, 50 Tenn.App. 648, 363 S.W.2d 405 (1962).
This leaves one category of expense still in question. The court will refer to it as the excess mortgage expense. It amounted to $11,600. That is the difference between the $23,000 mortgage debt expressly divided by the divorce decree and the total amount paid to satisfy the mortgage debt, about $34,600. Using the court's previous method of calculation, Mr. Hamby paid 76% of this excess mortgage expense. That amounted to $8,817. Mr. Hamby could have asserted a right to collect a portion of that amount from the sale proceeds. The question is whether Mr. Hamby honestly believed he could collect any of the excess mortgage expense from the sale proceeds without Ms. Hamby's agreement or the chancery court's approval.
The focus is again on Mr. Hamby's intent. The court thinks the same reasoning applies to the excess mortgage expense that applied to the property expenses. To pay off the mortgage debt, the divorce decree made each party solely liable for half of $23,000, which was apparently the principal debt. This did not mean or necessarily imply that each party was solely liable for half of the interest and charges that might accrue during the delay until a cash sale. The timing and terms of the sale were in Mr. Hamby's control. The long delay between the divorce and the cash sale can be attributed to him and so can the resulting increase in the amount needed to pay the mortgage debt. Furthermore, Mr. Hamby's control of the property after the divorce gave him the benefit of rent paid by the tenants or his own occupancy of the house without paying rent. Either of those benefits would have offset additional mortgage expense caused by the delay. In light of these facts, the divorce decree's failure to mention the additional mortgage expense that might accrue before a sale suggests that the parties and the chancery court intended to put liability on Mr. Hamby as a fair division of expenses. The divorce decree's failure to mention additional mortgage expense also means that the decree did not give Mr. Hamby a claim for it or allow him to collect it from Ms. Hamby or the sale proceeds. If Mr. Hamby honestly believed he should be able to collect a portion of the excess mortgage expense from the sale proceeds, he also knew that he needed the chancery court's permission. His failure to ask the chancery court or Ms. Hamby reveals his wrongful intent to take the sale proceeds without regard to Ms. Hamby's rights or the chancery court's jurisdiction.
The court's reasoning also means that the excess mortgage expense does not come within the reimbursement category even though the mortgage debt was among the divided debts. The excess mortgage expense is more like the property expenses incurred by Mr. Hamby between the divorce and the sale. The court does not believe that Mr. Hamby honestly thought he could collect all or part of the excess mortgage expense by retaining sale proceeds without Ms. Hamby's agreement or the chancery court's approval. Mr. Hamby's retention of the sale proceeds to collect any of the excess mortgage expense was willful and malicious as to Ms. Hamby.
The court will enter an order declaring Mr. Hamby liable for a non-dischargeable debt in the amount of $19,980.34. That amount is Ms. Hamby's half of the net sale proceeds ($30,680.17) less the reimbursement claims ($10,699.83) that Mr. Hamby collected from the net sale proceeds without willful and malicious intent.
This memorandum opinion constitutes the court's findings of fact and conclusions of law. Fed.R.Bankr.P. 7052.