Opinion
Case No. 05-14918, Adversary Case No. 05-1184.
October 13, 2006
MEMORANDUM OF DECISION
INTRODUCTION
Plaintiff Mary Beth Masimore ("Masimore") and Defendant Thomas A. Phillips ("Phillips") are ex-spouses. When Phillips and his current wife filed a joint chapter 7 petition in this Court, Masimore filed motions seeking a determination that the automatic stay did not preclude her from enforcing and collecting a prepetition claim arising from the parties' divorce proceedings. Masimore argued that the stay was inapplicable under 11 U.S.C. § 362(b)(2) because she would merely seek to collect child support from non-estate property. See Case Docs. 31 35. On December 6, 2005, the Court entered an order holding the motions in abeyance until it was first determined whether the debt was nondischargeable under 11 U.S.C. § 523(a)(5). See Case Doc. 47. Prior to the December 6, 2005 order, Masimore, Thomas Arthur Phillips, Jr., and Patrick Carroll Phillips commenced the above-captioned dischargeability action against the Debtors under 11 U.S.C. § 523(a)(5) and (15).
This case was filed before the effective date of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 ("BAPCPA"). Consequently, all references to Title 11 of the United States Code are to the pre-BAPCPA version of Title 11.
Plaintiffs Thomas Arthur Phillips, Jr. and Patrick Carroll Phillips are the children of Masimore and Phillips.
PLEADINGS AND ISSUES TO BE DECIDED
On February 23, 2006, Phillips filed a Motion For Contempt And Violation Of 11 U.S.C. 362 ("Motion") (Case Doc. 50) against Masimore. The Motion is presently before the Court for decision.
By his Motion, Phillips alleges that Masimore violated the automatic stay by appearing at a postpetition hearing in the parties' divorce proceedings and allowing the Wisconsin state court to enter an order against Phillips subsequent to this Court's December 6, 2005 order holding the § 362(b)(2) motions in abeyance.
The state court order, which was entered by the Assistant Family Court Commissioner on February 16, 2006, and adopted by the Circuit Court Judge on March 17, 2006, is limited to the single finding that certain divorce-related debts owed by Phillips to Masimore "are in the nature of child support and are not dischargeable." See Case Doc. 59.
Following a status conference on the Motion, the Court directed the parties to brief the following issues, which are now before the Court for decision: (1) whether Masimore violated the automatic stay when she participated in the state court proceedings that resulted in the March 17, 2006 order; and (2) whether the March 17, 2006 order is binding on the parties and this Court so as to preclude further litigation in this Court under § 523(a)(5).
VIOLATION OF AUTOMATIC STAY
The threshold issue is whether the entry of the state court order violated the stay. If so, it would be voidable. See Easley v. Pettibone Michigan Corp., 990 F.2d 905, 911 (6th Cir. 1993) ("actions taken in violation of the stay are invalid and voidable and shall be voided absent limited equitable circumstances"). If voided, the order would not be entitled to preclusive effect. See In re Graves, 33 F.3d 242, 247 (3rd Cir. 1994) (state court order that violated automatic stay is void and not entitled to preclusive effect); LaBarge v. Vierkant (In re Vierkant), 240 B.R. 317, 320 (B.A.P. 8th Cir. 1999) (same).
As noted, the Wisconsin state court's March 17, 2006 order is limited to a single finding that certain divorce-related debts owed by Phillips to Masimore "are in the nature of child support and are not dischargeable." See Case Doc. 59. Therefore, the issue is whether the automatic stay is violated when a state court exercises its concurrent jurisdiction under § 523(a)(5) even though the bankruptcy court has not granted relief from stay for that purpose.
See Baker v. Baker (In re Baker), 195 B.R. 883, 885 (Bankr. S.D. Ohio 1996) ("state courts have concurrent jurisdiction to hear questions of dischargeability arising out of 11 U.S.C. § 523(a)(5)").
Noting the absence of case law on the issue, at least one bankruptcy court has held that a state court determination of dischargeability under § 523(a)(5) is excepted from the automatic stay under § 362(b)(2)(A)(ii). See In re Massengill, 227 B.R. 697, 699 (Bankr. S.D. Ind. 1997); see also Pope v. Wagner (In re Pope), 209 B.R. 1015 (Bankr. N.D. Ga. 1997) (recognizing preclusive effect of state court determination that § 523(a)(5) action in state court is excepted from the stay under § 362(b)(2)(A)(ii)).
Section 362(b)(2)(A)(ii) provides in relevant part:
The filing of a petition under section . . . 302 . . . of this title . . . does not operate as a stay —
. . .
(2) under subsection (a) of this section —
(A) of the commencement or continuation of an action or proceeding for —
. . .
(ii) the establishment or modification of an order for alimony, maintenance, or support[.] Congress added subsection (A) as part of the 1994 amendments. Massengill, 227 B.R. at 699. The legislative history provides:
This section is intended to provide greater protection for alimony, maintenance, and support obligations owing to a spouse, former spouse or child of a debtor in bankruptcy. The Committee believes that a debtor should not use the protection of a bankruptcy filing in order to avoid legitimate marital and child support obligations.
140 Cong. Rec. H10,770 (1994).
Viewed in light of the legislative history, the Court finds Massengill to be well-reasoned and adopts its conclusion, wherein the court states:
By amending Section 362(b)(2) in 1994, Congress clearly intended to broaden the protections offered former spouses and children. That Congressional intent would be significantly frustrated if the Court were to hold that Section 362(b)(2)(A)(ii) does not except from the stay the type of action in issue here.
Massengill, 227 B.R. at 699. Therefore, the Court holds that Masimore's conduct that led to the entry of the March 17, 2006 order did not violate the automatic stay.
PHILLIPS' ARGUMENTS
Phillips raises several arguments in support of his position that Masimore's conduct violated the automatic stay. The Court will now explain why it is not persuaded by the Defendants' arguments for enforcement of the stay.
1. Distinguishable Case Law
Among others, Phillips heavily relies upon three decisions from this jurisdiction which the Court believes to be distinguishable.
Phillips cites NLT Computer Servs. Corp. v. Capital Computer Sys., Inc., 755 F.2d 1253, 1258 (6th Cir. 1985) for its legal conclusion that "[t]he stay provisions of section 362 are automatic and self-operating and those who have knowledge of the pendency of a bankruptcy action and stay are bound to honor the stay unless and until it is properly lifted." This proposition of law, however, has no application to a situation where a valid exception to the stay applies under § 362(b). NLT Computer Servs., unlike the instant case, did not involve a § 362(b) exception to the stay.
Phillips further argues that the facts in this case are indistinguishable from the facts set forth in Brock v. Barlow (In re Brock), 58 B.R. 797 (Bankr. S.D. Ohio 1986), wherein the court found a violation of the automatic stay. In Brock, the debtor's former spouse did not obtain relief from stay before she continued her prosecution of a motion for contempt in the divorce proceedings. Thereafter, the debtor was incarcerated until he complied with a prior order directing him to hold his former spouse harmless on a certain obligation. Brock is distinguishable from the instant case because Masimore did not request, and the state court did not enter, a contempt order compelling payment of a prepetition debt. The March 17, 2006 order makes no reference to contempt and is limited to the single finding that certain debts "are in the nature of child support and are not dischargeable." As such, this case is more like Massengill than Brock. Moreover, Brock predates the 1994 amendment that added § 362(b)(2)(A) as an exception to the stay.
The Court agrees with Phillips that a contempt proceeding to compel payment of a prepetition debt does not fall within the § 362(b)(2) exception to the stay. See Tipton v. Adkins (In re Tipton), 257 B.R. 865, 874-75 (Bankr. E.D. Tenn. 2000).
The third decision relied upon by Phillips is Carr v. Schwab (In re Carr), Ch. 7 Case No. 88-04098, Adv. No. 89-0006 (Bankr. S.D. Ohio Mar. 9, 1989) (Aug J.). Similar to Brock, Carr involved a postpetition motion for contempt filed against the debtor in the domestic relations court without relief from stay. Similar to this case, however, the former spouse also sought a § 523(a)(5) determination in the state court. Addressing the issue of whether the former spouse violated the automatic stay, the court stated:
Finally we deal with the issue of whether the Defendant's actions in bringing the motion for contempt constitute a violation of the automatic stay. While we previously stated that both the bankruptcy court and the state court have concurrent jurisdiction over the dischargeability of this debt, this does not relieve the creditor from seeking relief from the automatic stay before proceeding in state court.
Carr, slip op. at 4 (emphasis added). Based upon the foregoing language, it appears as though the court may have addressed only the issue of whether the stay was violated by the contempt motion and not the § 523(a)(5) relief. However, even if the decision extends to the § 523(a)(5) issue, Carr, like Brock, was rendered prior to the 1994 amendment to § 362(b)(2)(A). Thus, the exception to the stay that the Court finds applicable to this case did not exist at the time of Carr.
2. The December 6, 2005 Order
On December 6, 2005, this Court entered an order holding Masimore's § 362(b)(2) motions in abeyance, concluding that stay relief was not appropriate until the dischargeability of the underlying debt was first determined. See Case Doc. 47. Phillips contends that Masimore's subsequent actions must have violated the stay given that the stay was never modified by the Court.
It is important to distinguish between the relief Masimore requested in her § 362(b)(2) motions and the relief she pursued in state court after the entry of the December 6, 2005 order. In the former, Masimore sought a determination that the automatic stay did not preclude her from enforcing and collecting prepetition claims. Subsequent to the entry of the December 6, 2005 order, she did not continue with enforcement and collection attempts. Instead, the ensuing state court litigation was limited to the sole issue of the dischargeability of the prepetition claims. The December 6, 2005 order did not address the issue of whether the latter conduct was enjoined by the automatic stay. Consequently, the Court disagrees with Phillips' contention that Masimore "went forward in State Court and asked for and received an Order from that Court deciding the very issues that this Court had specifically refused permission on which she could proceed." See Doc. 60 at 5 (emphasis in original).
Similarly, Phillips misconstrues the following language in the December 6, 2005 order:
Nonetheless, to avoid a potential procedural dilemma which might waste judicial resources, and to preserve the integrity of the discharge of the debt at issue, if warranted, the automatic stay precludes Masimore from further prosecution of her prepetition claim in state court at this juncture.
See Case Doc. 47 at 5. Phillips contends that Masimore has now "created the procedural dilemma that [the Court] so plainly visualized in [its] Order." See Case Doc. 60 at 5 (emphasis in original). The "dilemma" that the Court was referring to was not the litigation of the § 523(a)(5) issue in state court. It was the preclusive effect of granting relief from stay prior to a determination of whether the claim was dischargeable under § 523(a)(5). As noted in the December 6, 2005 order, this dilemma is embodied in the facts of Montoya v. Vigil (In re Vigil), 250 B.R. 394 (Bankr. D.N.M. 2000) (creditor who initially prevailed on motion under § 362(b)(2) argued that debtor was subsequently precluded from contesting dischargeability of the debt in the § 523(a)(5) adversary proceeding under res judicata and collateral estoppel principles).
PRECLUSIVE EFFECT OF STATE COURT'S § 523(A)(5) DETERMINATION
Although Masimore did not violate the automatic stay, the issue remains as to whether the state court determination is binding on this Court. As noted above, the Plaintiffs commenced an adversary proceeding in this Court under § 523(a)(5) and (15) before the state court entered its March 17, 2006 order.
The general rule is that two courts with concurrent jurisdiction may proceed until the first enters judgment, which is binding on the other. See Princess Lida of Thurn and Taxis v. Thompson, 305 U.S. 456, 466 (1939); Penn General Casualty Co. v. Commonwealth of Pennsylvania, 294 U.S. 189, 195 (1935). As such, the Wisconsin decision would be binding on this Court.
However, there is an exception to the general rule, sometimes referred to as the doctrine of prior exclusive jurisdiction.
[I]f the two suits are in rem, or quasi in rem, so that the court, or its officer, has possession or must have control of the property which is the subject of the litigation in order to proceed with the cause and grant the relief sought the jurisdiction of the one court must yield to that of the other. We have said that the principle applicable to both federal and state courts that the court first assuming jurisdiction over property may maintain and exercise that jurisdiction to the exclusion of the other, is not restricted to cases where property has been actually seized under judicial process before a second suit is instituted, but applies as well where suits are brought to marshal assets, administer trusts, or liquidate estates, nd in suits of similar nature where, to give effect to its jurisdiction, the court must control the property
Princess Lida, 305 U.S. at 466 (emphasis added); see also Penn General, 294 U.S. at 195.
Although an action to determine the dischargeability of a debt is an in rem proceeding, Tennessee Student Assistance Corp. v. Hood, 541 U.S. 440, 447 (2004), the Court does not view it as a suit "where, to give effect to its jurisdiction, the court must control the property." Accordingly, the Court holds that the general rule applies to this case, being that the first judgment between two courts with concurrent jurisdiction is binding. As such, the March 17, 2006 order is binding on the parties in this Court.
Even if the doctrine of prior exclusive jurisdiction is applicable, the Court believes the Wisconsin judgment is entitled to preclusive effect. It would constitute a judgment that exceeds the Wisconsin court's subject matter jurisdiction. The issue would then be whether it is subject to collateral attack on that basis. This question is governed by Restatement (Second) of Judgments § 12 (1982), which provides:
When a court has rendered a judgment in a contested action, the judgment precludes the parties from litigating the question of the court's subject matter jurisdiction in subsequent litigation except if:
(1) The subject matter of the action was so plainly beyond the court's jurisdiction that its entertaining the action was a manifest abuse of authority; or
(2) Allowing the judgment to stand would substantially infringe the authority of another tribunal or agency of government; or
(3) The judgment was rendered by a court lacking capability to make an adequately informed determination of a question concerning its own jurisdiction and as a matter of procedural fairness the party seeking to avoid the judgment should have opportunity belatedly to attack the court's subject matter jurisdiction.
As to the first factor, this Court does not believe that the § 523(a)(5) action was "plainly beyond" the Wisconsin court's jurisdiction. If it was beyond the state court's jurisdiction, it would have been apparent only to those familiar with both the obscure doctrine of prior exclusive jurisdiction and the little-known tenet (at least as to non-bankruptcy attorneys) that dischargeability actions are in rem proceedings. This conclusion is further support by the fact that neither Phillips nor Masimore questioned the subject matter jurisdiction of the Wisconsin court. As to the second factor, allowing the judgment to stand does not substantially infringe on the authority of this Court. Determinations as to alimony, maintenance and support are better left to the state courts. Lastly, the state court, being a court of general jurisdiction, did not lack the ability to determine its own jurisdiction.
A collateral attack upon the Wisconsin judgment due to alleged lack of subject matter jurisdiction arises in a different context as well. Phillips contends that the Wisconsin court "purports to exercise jurisdiction over matters included in 11 U.S.C. § 523(a)(15), over which it has no jurisdiction since that jurisdiction is reserved solely to the Bankruptcy Court[.]" See Case Doc. 60 at 4. Phillips is correct that bankruptcy courts possess exclusive jurisdiction to make determinations under § 523(a)(15). In re Dunn, 225 B.R. 393, 399 (Bankr. S.D. Ohio 1998). However, the Court does not believe that the Wisconsin court made any determination under § 523(a)(15). Again, the state court limited its decision to the finding that certain marital obligations "are in the nature of child support[.]" Subsections (a)(5) and (a)(15) are mutually exclusive. In re Crosswhite, 148 F.3d 879, 887 (7th Cir. 1998) ("The Bankruptcy Code, by adding § 523(a)(15), has set forth two subsections that are mutually exclusive: Subsection (5) encompasses alimony, maintenance and support, and subsection (15) applies only to debts `not of a kind described in paragraph (5).'"). If the state court determined that the obligations constituted child support, then those obligations cannot possibly fall within the scope of § 523(a)(15). Accordingly, this Court finds that the Wisconsin court's decision was limited to a § 523(a)(5) determination only. Therefore, the state court did not exceed its subject matter jurisdiction in this regard.
CONCLUSION
For the foregoing reasons, the Court holds that: (1) Masimore did not violate the automatic stay when she participated in the state court proceedings that resulted in the March 17, 2006 order; and (2) the March 17, 2006 order is binding on the parties and this Court so as to preclude further litigation in this Court under § 523(a)(5). Accordingly, the Motion will be DENIED and a nondischargeable judgment will be entered in favor of the Plaintiffs. Entries to this effect will be docketed separately.