Opinion
Case No. BK-04-01277 CGC, Adv. Proc. 04-1277.
November 15, 2005
Janice M. Palmer Law Offices of Janice M. Palmer, P.C. Chandler, Az, Attorney for Plaintiff.
Owen and Lydia M. Aleshire Phoenix, Az, Debtors.
Michael E. Neumann DeConcini McDonald Yetwin Lacy, P.C. Phoenix, Az, Attorney for Debtors.
UNDER ADVISEMENT DECISION RE: CROSS MOTIONS FOR SUMMARY JUDGMENT
I. Introduction
Plaintiff Mary Jo Aleshire, Debtor Owen Aleshire's ex-wife, has filed a Complaint to Determine Dischargeability of Debt against Debtors arising from a state court judgment issued by the state court in a divorce proceeding. Both Plaintiff and Defendant seek summary judgment on the issue of whether the attorneys' fees and forensic accounting fees awarded to Plaintiff, and against Defendant, in the state court proceedings are nondischargeable under 11 U.S.C. section 523(a)(5).
II. Facts
The following facts are undisputed. Plaintiff and Debtor Owen Aleshire were divorced on June 12, 1992. Debtor fell behind in payment of child support and various uncovered medical expenses. In 2001, Debtor filed Request for Simplified Modification of Child Support, requesting that his child support obligation be reduced. As part of that process, the parties agreed to the appointment of a forensic accountant to determine Debtor's income for purposes of calculating his child support obligation. According to the parties, Plaintiff was ordered to pay the costs of the forensic accountant "subject to reallocation at a later time." A trial was ultimately conducted in state court and the matter taken under advisement.
On February 25, 2004, the Court issued its minute entry decision in which it found Debtor $1,285.50 in arrears on his child support obligation plus interest for a total judgment owing of $3,343.42. The court also awarded Plaintiff judgment in the amount of $291.87 for unpaid medical expenses. Both parties agree that these amounts are in the nature of child support and, therefore, nondischargeable. However, the court also awarded Plaintiff 50% of the cost of the forensic accountant ($5,500) and 25% of her attorneys' fees ($4,502.50) and costs ($68.06), for a grand total of $10,070.56. The parties disagree as to whether these costs and fees are dischargeable. Plaintiff argues that the court awarded these fees and costs pursuant to Arizona Revised Statute ("A.R.S") section 25-324 and are therefore nondischargeable under 11 U.S.C. section 523(a)(5): Debtor argues the fees and costs were awarded pursuant to A.R.S. section 25-503 and are dischargeable.
III. Analysis
The presumption is that the fees and costs are dischargeable. To find them nondischargeable, Plaintiff bears the burden of demonstrating that the obligations at issue are actually in the nature of alimony, maintenance or support under 11 U.S.C. section 525(a)(5). In re Gibson. 103 B.R. 218, 220 (9 th Cir. BAP 1989). 11 U.S.C. section 523(a)(5) states, in pertinent part,
A discharge under section 727, 1141, 1228(a), 1228(b), or 1328(b) of this title does not discharge an individual debtor from any debt . . . to a spouse, former spouse, or child of the debtor, for alimony to, maintenance for, or support of such spouse or child in connection with a separation agreement, divorce decree or other order of a court of record . . . but not to the extent that such debt includes a liability designated as alimony, maintenance, or support, unless such liability is actually in the nature of alimony, maintenance, or support.
The parties are correct that how the state court characterizes the debt is a relevant factor for this Court to consider, although the question is ultimately one of federal law. In re Chang, 163 F.3d 1138 (9th Cir. 1998); Shaver v. Shaver, 736 F.2d 1314 (9th Cir. 1984). Also of importance to consider, is the parties' intent and the "substance of the obligation." Shaver, 736 F.2d at 1316.
A factor in characterizing an obligation as one intended for support is the need of the recipient spouse. . . . Factors indicating the need for support "include the presence of minor children and an imbalance in the relative income of the parties" and whether the obligation terminates on the death or remarriage of the recipient spouse.
Gard v. Gibson (In re Gibson), 103 B.R. 218, 221 (9th Cir. BAP 1989) (quoting Shaver, 736 F.2d at 1316). Where the award of attorneys' fees was not based on the financial need, courts have found the obligation dischargeable. See In re Hoberg, 300 B.R. 752 (Bankr. C.D. Cal. 2003) (holding that parties expressly agreed to allow award of attorneys' fees to prevailing party and therefore, fees are dischargeable); see also In re Gibson, 103 B.R. 218 (9th Cir. BAP 1989); In re King, 15 B.R. 127 (Bankr. D. Kan. 1981) (holding that where ex-wife not in dire financial need at time of divorce, fees would be considered part of the dissolution of debts rather than in the nature of support);
Plaintiff attempts to meet her burden by asserting that the Superior Court based its judgments for attorney's fees and costs and forensic accounting fees on A.R.S. section 25-324, which states,
The court from time to time, after considering the financial resources of both parties and the reasonableness of the positions each party has taken throughout the proceedings, may order a party to pay a reasonable amount to the other party for the cost and expenses of maintaining or defending any proceeding under this chapter or chapter 4, article 1 of this title.
According to Plaintiff, fees and costs awarded pursuant to A.R.S. section 25-324 have been interpreted by courts in the Ninth Circuit to qualify as in the nature of support and therefore nondischargeable under section 523(a)(5). In particular, Plaintiff points to Judge Haines' decision in this Court in In re Jarski, 301 B.R. 345 (Bank. D. Ariz. 2003), in which the Court held that fee awards in custody disputes under A.R.S. section 25-324 are founded on a spouse's duty of support: "Fees incurred in a child custody dispute are in the nature of support for the child, even if payable to someone else." 301 B.R. at 347 (citing Marks v. Catlow (In re Catlow), 663 F.2d 960, 963 (9th Cir. 1981); In re Chang, 163 F.3d 1138, 1141 (9th Cir. 1998)). In Jarski, the Court expressly found that the state court, in all its rulings before it, "including the award of attorney's fees, were made primarily with the best interests of the child in mind, and therefore the awards were in the nature of child support." Id.
Debtor counters that the fees were not in fact awarded pursuant to A.R.S. section 25-324, but instead were awarded pursuant to A.R.S. section 25-503(E), which states, in pertinent part. "The order of modification or termination may include an award of attorney fees and court costs to the prevailing party." The award, therefore, was not based on financial need of the parties and was not intended as support.
While both parties properly set forth the state of the law in regards to the respective statutory provisions upon which they rely, neither convinces this Court that either provision was the lynch pin for the trial court's award. While admittedly the parties were litigating issues of child support modification, child custody and health care expenses, that alone does not make the fees and costs in the nature of support. Nowhere did the trial court identify what statute it was relying on in awarding fees and nowhere did it set forth any analysis of the parties' the financial needs. In fact, perhaps diluting Plaintiff's argument that the fee award was based on the financial standing of the parties, is the fact that the court simply divided equally between Plaintiff and Debtor the forensic accounting fees and ordered Debtor to pay only 25% of her attorneys' fees. This suggests that perhaps the award was more in the nature of a property division than an allocation based on financial need. Certainly, however, this Court cannot agree with Plaintiff on summary judgment that "the presumption was made that the attorney's fee award was in the nature of child support." There is simply no evidence to support either parties' position on summary judgment.
IV. Conclusion
For the foregoing reasons, the Court denies both Plaintiff's Motion for Summary Judgment and Debtor's Cross Motion for Summary Judgment. Further, the parties shall appear before this Court for a Rule 16(b) Scheduling Conference on January 4, 2006 at 1:30 a.m./p.m. in order to proceed to trial.
So ordered.