Opinion
Case No. 02-65810-aer11.
April 11, 2007
This letter is intended to announce my findings and conclusions regarding the above-referenced motion.
Procedural History:
Debtor Clyde Collins (Debtor) filed his Chapter 11 petition on August 5, 2002. The case is currently proceeding under the Creditors' Committee's plan dated December 2, 2002 and confirmed on February 21, 2003. It is a liquidating plan; Michael Grassmueck is the Trustee of a liquidating trust (Trustee).
On October 22, 2002, Debtor's ex-wife Linda McCurter Collins (Claimant) filed proof of claim #32 for $174,621.95. The claim is summarized on page 2 thereof. It includes $50,000 filed as priority under 11 U.S.C. § 507(a)(7) pursuant to a stipulated dissolution judgment (the judgment). The summary notes the judgment amount is $120,000 but that only $50,000 was due and owing as of the petition date. The judgment is attached as an exhibit to the claim.
Unless otherwise indicated, all subsequent statutory references are to Title 11 of the United States Code.
On November 3, 2006, Trustee objected to the claim on various grounds, including that "the Dissolution Judgment on which the claim is based does not support a priority claim." He recommended allowance as a priority claim for $0.00 and a nonpriority unsecured claim for $120,000.
Claimant requested a hearing on the objection. Besides raising several new priority claims based on expenses incurred protecting Debtor's corporation, Sonora Manufacturing, she averred that her claim under the judgment was actually a $120,000 claim (plus interest to the date of the Chapter 11's filing) and entitled to priority under § 507(a)(1)(A).
Trustee has now moved for partial summary judgment solely on the issue of the priority of the $120,000 now claimed under the judgment. He has included a concise statement as well as a memorandum. Claimant has not responded to the motion. It is ripe for decision.
Facts:
The judgment was entered in Los Angeles Superior Court on February 6, 2002. Section 5 thereof is entitled: "NON-TAXABLE SETTLEMENT PAYMENT." It provides in pertinent part:
5.1 In order to substantially effectuate an equal division of community property assets and debts, and in order to compromise a complete settlement of all other claims, rights and issues of every kind and nature, existing between the parties, Respondent [Debtor] shall pay to Petitioner [Claimant], as a non-taxable settlement payment, the following:
5.1.1 A cash payment in the total sum of One Hundred Twenty Thousand Dollars ($120,000), which amount shall be payable in installments of Five Thousand Dollars per month, commencing on November 1, 2001 and continuing on the first day of each and every month, until the amount is paid in full, for a total of twenty-four (24) payments of Five Thousand Dollars ($5,000). Respondent's obligation to pay this settlement payment to Petitioner, which is non-taxable to her, survives the death of Respondent.
(1) In the event Respondent is more than five (5) days late in any one payment, then the remainder of the payments due shall be automatically debited each month from the Sonora Manufacturing business account.
(2) Since Respondent has not satisfied his obligation since
November 1, 2001, the Court finds and orders that financial institution(s) holding funds for Sonora Manufacturing shall be notified that the automatic debit provision is effective at the time of execution of this Stipulated Judgment.
5.1.2 The net compromise and settlement payment referred to in this section is paid pursuant to Internal Revenue Service Section 1041 (and comparable provisions of California law), and it is intended to be non-taxable to Respondent [sic] and non-deductible to Petitioner [sic]. The settlement payment is not incident to a sale of assets, and neither party shall claim same as a sale or change in basis. This settlement payment represents a compromise of conflicting claims and contentions concerning the nature and extent of community property assets and debts. Therefore, acceptance of said settlement payment is in full satisfaction of all community property rights, which the parties deem to be a substantially equal division and allocation for purposes of settlement, and the division of community property assets and debts, and for any and all other claims which one or both parties may have against the other.
Section 9 is entitled: MUTUAL WAIVER OF SPOUSAL SUPPORT. It provides in pertinent part:
9.1 Petitioner's Waiver of Spousal Support. Petitioner waives, discharges and releases Respondent from any and all claims for spousal support or alimony, both temporary and permanent. Petitioner's waiver, discharge and release of Respondent for and all past, present and future claims for spousal support or alimony, both temporary and permanent, is hereby approved. The Court finds that Petitioner has been informed that she cannot at any time hereafter petition the Superior Court of the State of California, or any other Court, in the future, for spousal support, alimony or maintenance, either temporary, or permanent from Respondent. The Court shall have absolutely no power or jurisdiction to make any order for spousal support, alimony or maintenance for Petitioner, whether as to amount or duration. Petitioner shall hereby forbear from seeking an order from any Court for spousal support, alimony or maintenance, regardless of any future circumstance or change in the law.
Section 9.1.1 provides that Claimant has consulted with counsel as to the meaning and importance of her spousal support waiver, and that the waiver is absolute.
Sections 9.2 and 9.2.1 contain similar waivers of Debtor's right to spousal support.
Summary Judgment Standards:
On a motion for summary judgment, the moving party has the burden to establish the absence of a material issue of fact for trial. FRCP 56(c). The substantive law governing a claim or defense determines whether a fact is material. T.W. Elec. Service., Inc. v. Pacific Elec. Contractors Ass'n, 809 F.2d 626, 630 (9th Cir. 1987). Material facts are such facts as may affect the outcome of the case. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 2510, 91 L. Ed. 2d 202, ___ (1986).
With regard to a motion for summary judgment attacking the opposing party's claims or defenses (i.e. those for which the nonmovant has the burden of proof at trial), and assuming sufficient time for discovery, the movant may discharge his Rule 56 burden in two ways. He may submit evidence affirmatively negating elements of the nonmoving party's claims or defenses (method one) or, he may affirmatively demonstrate (other than by a conclusory statement) that the nonmoving party's evidence is insufficient to establish an essential element of the nonmoving party's claim (method two), Celotex Corporation v. Catrett, 477 U.S. 317, 331, 106 S. Ct. 2548, 2557, 91 L. Ed. 265, ___ (1986) (Brennan, J) (dissent), as there is "no express or implied requirement . . . that the moving party support its motion with affidavits or other similar material negating the opponent's claim." Id. at 323, 106 S. Ct. at 2553, 91 L. Ed. 2d at ___ (majority opinion). Once the moving party has met its burden of production under either method, the directed verdict standard comes into play, as the burden shifts to the nonmoving party to produce evidence sufficient to sustain a jury verdict on those issues for which it bears the burden at trial. Rebel Oil Co., Inc. v. Atlantic Richfield Co., 51 F.3d 1421, 1435 (9th Cir. 1995) (quotation omitted). This requires the nonmoving party to produce significant probative evidence. Anderson, supra at 249, 106 S.Ct. at 2510, 91 L. Ed. 2d at ___ (a dispute with regard to a material fact is "genuine" only if the evidence is such that a reasonable jury could return a verdict for the nonmoving party).
A rebuttable presumption in favor of one party imposes on the other party the burden of production, i.e. the burden of going forward with evidence, but it does not alter the ultimate burden of persuasion. Litton Loan Servicing v. Garvida (In Re Garvida), 347 B.R. 697, 706 (9th Cir. B.A.P. (W.D. Wash.) 2003).
The existence of a presumption alters a summary judgment movant's ability to meet its summary judgment burden of production because the presumption excuses the beneficiary from having to put forth evidence until the party against whom the presumption operates puts forth evidence to rebut or meet the presumption. Where a summary judgment movant has the burden of production at trial on account of a presumption in favor of the nonmovant, the movant cannot satisfy its summary judgment burden of production by merely showing that the nonmovant's evidence is insufficient to establish an essential element of the nonmovant's claim; rather, as a prerequisite the movant must offer evidence sufficient to rebut or meet the presumption.
Devan v. The CIT Group et. al., (In re Merry Go-Round Enterprises, Inc.), 229 B.R. 337, 341 (Bankr. D. Md. 1999) (internal quotation omitted).
Claimant has the burden of proving by a preponderance of the evidence that her claim is entitled to priority. In Re Jennings, 306 B.R. 672, 676 (Bankr. D. Or. 2004). Under FRBP 3001(f), a claim executed and filed in accordance with the Federal Rules of Bankruptcy Procedure constitutes prima facie evidence of the validity and amount of the claim. Trustee does not challenge this evidentiary effect as to the classification of the judgment as "priority." As such, FRBP 3001(f) imposes a rebuttable presumption of the claim's validity, Litton Loan Servicing v. Garvida (In Re Garvida), 347 B.R. 697, 706 (9th Cir. BAP 2003), thus shifting to Trustee the initial burden on summary judgment of producing evidence sufficient to rebut or meet the presumption. Devan v. The CIT Group et. al., (In re Merry Go-Round Enterprises, Inc.), 229 B.R. 337, 341 (Bankr. D. Md. 1999); see also, Lundell v. Anchor Construction Specialists, 223 F.3d 1035, 1039 (9th Cir. 2000) (discussing claim objector's burden to come forward with sufficient evidence and "show facts tending to defeat the claim by probative force equal to that of the allegations of the proofs of claim themselves"). As discussed below, Trustee has met his burden.
All inferences drawn from the underlying facts must be viewed in the light most favorable to the nonmoving party. Simone v. Manning, 930 F. Supp. 1434 (D. Or. 1996). When different ultimate inferences can be reached, summary judgment is not appropriate.Id.
Trustee may move for summary judgment within the context of a claims objection. A claims objection is a "contested matter" governed by FRBP 9014. Lundell v. Anchor Construction Specialists, 223 F.3d 1035, 1039 (9th Cir. 2000). Pursuant to FRBP 9014(c), motions for summary judgment under FRBP 7056 (which incorporates FRCP 56) are available.
A party opposing a properly supported motion for summary judgment may not rest upon the mere allegations or denials of his pleading, but must set forth specific facts showing that there is a genuine issue for trial. FRCP 56(e); Anderson supra, at 256, 106 S.Ct. at 2514.
FRCP 56(e) is made applicable by FRBP 7056.
Discussion:
Trustee argues the judgment's terms dictate a finding that the $120,000 obligation is not in the nature of support. Trustee correctly cites former § 507(a)(7) as the controlling statute. It provided, in pertinent part, a seventh (7th) priority to:
Claimant incorrectly cites § 507(a)(1)(A). That section was enacted as part of BAPCPA and is not effective in cases filed before October 17, 2005, as here. See, § 1501 of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005.
Allowed claims for debts to a . . . former spouse . . . for alimony to, maintenance for, or support of such spouse . . ., in connection with a . . . divorce decree or other order of a court of record . . . or property settlement agreement, but not to the extent that such debt —
. . . .
(B) includes a liability designated as alimony, maintenance, or support, unless such liability is actually in the nature of alimony, maintenance or support.
Determining whether an obligation is in the nature of support for purposes of § 507(a)(7) is a matter of federal law. In Re Lutzke, 223 B.R. 552 (Bankr. D. Or. 1998); Shaver v. Shaver, 736 F.2d 1314, 1316 (9th Cir. 1984) (interpreting former § 523(a)(5)). The court must look beyond the decree's language, and examine the substance and not the form of the obligation.Kritt v. Kritt, (In re Kritt), 190 B.R. 382, 387 (9th Cir. BAP 1995) (quotation omitted). The court is not bound by the parties' or the state court's labels. In Re Jennings, 306 B.R. 672 (Bankr. D. Or. 2004); Kritt, supra. Although not bound by state law, the court may look to it for guidance. Gard v. Gibson (In Re Gibson), 103 B.R. 218, 220 (9th Cir. BAP 1989). When the debt has previously been agreed to, (as here) "the intent of the parties at the time the settlement agreement is executed is dispositive."Friedkin v. Sternberg ( In re Sternberg), 85 F.3d 1400, 1405 (9th Cir. 1996), overruled on other grounds, Murray v. Bammer (In re Bammer), 131 F.3d 788 (9th Cir. 1997).
Because, as to the issues at bar, former § 523(a)(5) contains identical language to former § 507(a)(7), cases interpreting it may be used in the analysis. Beaupied v. Chang (In Re Chang), 163 F.3d 1138, 1142 (9th Cir. 1998) ("application of § 507(a)(7) should be coincidental with application of § 523(a)(5)"); Lutzke,supra.
A trial court should consider several factors in determining how the parties intended to characterize the obligation. Foremost, the trial court should consider whether the recipient spouse actually needed spousal support at the time of the divorce. In determining whether spousal support was necessary, the trial court should examine if there was an imbalance in the relative income of the parties at the time of the divorce decree. The trial court should also consider whether the obligation terminates upon the death or remarriage of the recipient spouse and whether the payments are made directly to the recipient spouse and are paid in installments over a substantial period of time. Finally, the labels given to the payments by the parties may be looked at as evidence of the parties' intent.Id. (internal citations and quotations omitted). The presence of minor children is also a factor. Shaver, supra.
Applying the above criteria on the record before me, §§ 5 and 9 of the judgment clearly denote the $120,000 as property division, rather than spousal support. The payments are not taxable to Claimant, nor are they deductible by Debtor. The $120,000 obligation is not "modifiable." Nowhere does § 5 indicate that Debtor's obligation will cease upon Claimant's death. Conversely, it does provide that it will survive Debtor's death. Although none are dispositive, these factors are significantly probative that the obligation derives from property distribution rather than being in the nature of support. There is insufficient countervailing evidence to create a material issue of fact on this issue.
I have a limited record before me. Trustee has only referenced §§ 5 and 9 of the judgment. Claimant has not responded to the motion. The entire judgment is fifty (50) pages. I have no independent duty to review portions of the judgment not brought to my attention. LR 56.1(e) (made applicable by LBR 7056-1).
No evidence has been brought to my attention as to the parties' relative incomes at the time the judgment was entered and whether or not there were minor children.
Based on the above, Trustee's motion will be granted. An order consistent therewith will be entered. The above constitute my findings of fact and conclusions of law under FRBP 7052; they shall not be separately stated.