Opinion
Case No. 94-00392, Adversary Proceeding No. 94-10119.
November 18, 2008
MEMORANDUM DECISION REGARDING PETITION FOR ATTORNEY'S FEES
Commonwealth Land Title Insurance Company's Petition for Attorney's Fees will be dismissed.
I
In 1992, the defendant Hudson and the plaintiff Melinda Salata (then known as Melinda Salata Hudson) entered into a Separation, Custody, Support and Property Settlement Agreement. The Agreement provided for Hudson to pay, among other things, alimony and child support. The Agreement contemplated that the parties would obtain a divorce ending their marriage, with the Agreement to become part of any divorce decree, and indeed the Agreement was incorporated by reference as part of a divorce decree issued by the Superior Court of the District of Columbia in 1993. The Agreement provided that:
13.1 The parties agree to submit to the Court the question of who will be responsible for payment of the parties' attorneys' fees incurred in the litigation of this matter.
13.2 Should either of the parties hereafter default or breach any of the terms of this Agreement, or seek to rescind or modify it (except as permitted by the Agreement), the prevailing party, if any, shall be entitled to suit money, including reasonable attorney's fees, incurred in securing the defaulting party's compliance with the provisions of this Agreement. Such rights shall be in addition to any and all other damages arising from the conduct of the defaulting party.
In 1994, Hudson, as the debtor, commenced a bankruptcy case in this court. In 1996, in the above-captioned adversary proceeding, this court entered a judgment in the plaintiffs' favor declaring the following debts against the defendant Hudson to be nondischargeable:
A. All amounts designated as alimony or child support under the Separation, Custody, Support and Property Settlement Agreement dated November 1, 1992, between the plaintiff Melinda Salata and the defendant Daryl J. Hudson, III ("the Agreement").
B. Hudson's obligation to maintain health insurance coverage for the couple's two minor children under the Agreement.
C. Hudson's obligation to pay the plaintiff Kathleen Jeschke the sum of $20,000 plus any interest that comes due in the collection thereof.
D. Hudson's obligation under paragraph 8.1 (b)and 8.1 (c) of the Agreement to deliver to Salata the insurance checks or drafts or proceeds that Hudson receives for any medical expense of the couple's children paid for by Salata and to pay a pro rata share, based on the respective incomes of Hudson and Salata at the time the expense was incurred, of the unreimbursed portion of such expenses.
E. Reasonable attorney's fees incurred in successfully prosecuting already or in the future any of the other nondischargeable claims set forth above.
(Judgment, para. 1.) As to such nondischargeable debts other than attorney's fees, the Judgment awarded monetary judgments for the amounts that had come due by August 15, 1995. (Judgment, paras. 2 and 3.) The Judgment specified that as to amounts coming due after August 15, 1995, on such debts that had been declared to be nondischargeable, "the parties remain free outside of this adversary proceeding to pursue their rights in that regard." (Judgment, para. 3.)
As noted above, the Judgment declared that "[r]easonable attorney's fees incurred in successfully prosecuting already or in the future any of the other nondischargeable claims" specified by the Judgment were nondischargeable. (Judgment, para. 1(E).) The Judgment then awarded a monetary judgment to the plaintiffs "for their attorney's fees and expenses incurred in successfully prosecuting their claims through this date of $16,045.90. . . ." (Judgment, para. 4). As to nondischargeable claims that the plaintiffs might be forced to prosecute in the future (such as Salata's potentially pursuing future child support that Hudson might fail to pay), the plaintiffs' attorney's fee incurred in successfully prosecuting such claims would also be nondischargeable.
The Judgment did not purport to address what claims coming due in the future the plaintiffs would, as a matter of nonbankruptcy law, be entitled to recover from Hudson. As to claims coming due in the future, the Judgment declared that amounts of the character specified and that were recovered would be nondischargeable, but it did not specify when, under nonbankruptcy law, such amounts would be recoverable. For example, the Judgment did not decree that attorney's fees incurred in collecting the amounts that were reduced to monetary judgments by the Judgment would be recoverable by the plaintiffs.
The plaintiffs recorded the Judgment, and it became a lien on real property owned by Hudson. When Hudson sold that property in 1999, he executed an affidavit on July 6, 1999, in which he represented that the property was not subject to any judgment liens, and in which he agreed to indemnify the real estate settlement attorney's title insurance company as the result of any incorrect statements. Commonwealth Land Title Insurance Company ("Commonwealth") was the title insurer. Commonwealth caused the plaintiffs to assign their judgment to Commonwealth by way of an assignment of June 19, 2006.
On March 19, 2007, Commonwealth caused a writ of garnishment to be issued from this court to Hampden Kent Group, LLC, but on July 12, 2007, that writ was quashed as Hampden Kent Group, LLC is not located within this district. See Miscellaneous Proceeding No. 07-20002 (Docket Entry No. 17). Hudson filed a satisfaction of judgment which this court struck pursuant to Commonwealth's motion to strike (Docket Entry No. 102 filed May 10, 2007) in which it represented that none of the amounts owed under the Judgment after it was assigned to Commonwealth had been paid (with Commonwealth having rejected an unsatisfactory tender by Hampden Kent Group, LLC of a payment of less than the full amount owed).
Commonwealth filed a Petition for Attorneys' Fees in this adversary proceeding on May 17, 2007, requesting that this court grant it a judgment against Hudson for the attorney's fees it had incurred. (Docket Entry ("DE") No. 109). Hudson, filed an opposition to the Petition for Attorneys' Fees. (DE No. 108). On June 20, 2007, Commonwealth filed a reply memorandum. (DE No. 109).
The Petition for Attorneys' Fees was erroneously captioned for the Miscellaneous Proceeding that the clerk had opened for the writ of garnishment relating to the Judgment. At the instruction of the court, the clerk re-filed the Petition for Attorneys' Fees and docketed it in this adversary proceeding.
On July 13, 2007, the court issued a Memorandum Decision (DE No. 111), and an Order to Supplement Petition for Attorneys' Fees (DE No. 113), which raised, among other issues, the issue of whether this court has subject matter jurisdiction over the Petition. See, e.g., Order at 4 n. 2. On August 30, 2007, Commonwealth filed a Supplemental Memorandum (DE No. 126) which makes clear that the majority of fees and costs it seeks were incurred prior to its acquiring the Judgment, and that only $17,221.53 of the fees and costs it seeks to recover were incurred after it acquired the Judgment. Neither the Petition for Attorney's Fees nor the Supplemental Memorandum alleges that Commonwealth has engaged in litigation in which it has succeeded in obtaining payment of the Judgment, and it is now too late for Commonwealth to enforce its Judgment.
In March 2008, Commonwealth filed in this court a motion to revive the Judgment, but this court denied the motion, ruling in a Memorandum Decision of June 2, 2008, that Commonwealth's motion was barred as filed beyond the twelve-year period under D.C. Code § 15-101(a) during which Commonwealth could revive the Judgment.
For the reasons discussed below, the Petition for Attorney's Fees must be dismissed.
II
This court lacks subject matter jurisdiction over Commonwealth's request to obtain a judgment for any amounts that came due after the court entered the Judgment in 1996. The Judgment indicated that all other amounts of certain types of debt that came due under the Agreement would be of a nondischargeable character, and declared that "the parties remain free outside of this adversary proceeding to pursue their rights in that regard." Judgment at par. 3. In other words, the court contemplated that the parties would not utilize this adversary proceeding to sue to collect nondischargeable debts (including nondischargeable attorney's fees) that came owing in the future. And there was good reason for framing the judgment that way.
A.
The court's jurisdiction is that of the district court under 28 U.S.C. § 1334(b). The attorney's fees claims that arose after the entry of the Judgment do not fit within that jurisdiction because they did not arise under the Bankruptcy Code, did not arise in the bankruptcy case (or the adversary proceeding) itself, and are not related to the case because they have no impact on the administration of the estate.
B.
Nor do the claims fall within the court's ancillary jurisdiction. The court may have had ancillary jurisdiction to enforce the Judgment (as by way of issuing garnishments, and awarding attorney's fees incurred in the litigation of the garnishments). In contrast, exercising jurisdiction over claims for attorney's fees incurred after the entry of the Judgment and not incident to enforcement litigation in this court would not be ancillary to this court's entry of the Judgment. Instead, that would be entering a judgment for new amounts that did not arise in the bankruptcy case and its proceedings, but that arose instead after the conclusion of the adversary proceeding and otherwise wholly outside of the bankruptcy case and its proceedings.
The courts are divided on this issue. Compare In re Miller, 248 B.R. 198, 200 (Bankr. M.D. Fla. 2000) (no jurisdiction to issue garnishment writ on nondischargeable judgment); HOC, Inc. v. McAllister (In re McAllister), 216 B.R. 957, 965, 969 (Bankr. N.D. Ala. 1998) (same), with McCowan v. Fraley (in re McCowan), 296 B.R. 1 (B.A.P. 9th Cir. 2003) (ancillary jurisdiction exists to issue garnishment as part of original nondischargeability proceeding); Harpley v. Five Star Tickets, Inc. (In re Premier Sports Tours), 283 B.R. 601, 604 (Bankr. M.D. Fla. 2002).
While an incident of a nondichargeability proceeding's judgment may be to fix the amount of debts being declared to be nondischargeable, that rests on the necessity of doing full justice in adjudicating the dispute, as it makes no sense to determine in a trial the nondischargeable character of the debt and not to fix the liability and amount of the debt at the same time. See In re Devitt, 126 B.R. 212, 215 (Bankr. D. Md. 1991) ("If it is acknowledged as beyond question that a complaint to determine dischargeability of a debt is exclusively within the equitable jurisdiction of the bankruptcy court, then it must follow that the bankruptcy court may also render a money judgment in an amount certain without the assistance of a jury. This is true not merely because equitable jurisdiction attaches to the entire cause of action but more importantly because it is impossible to separate the determination of dischargeability function from the function of fixing the amount of the nondischargeable debt.") (emphasis added). But once the proceeding is concluded by a final judgment adjudicating the issues presented, the parties are no longer before the court, and the function of fixing the amount of future amounts owed pursuant to the nondischargeable debt may be addressed by any other court of competent jurisdiction. The rationale for the bankruptcy court's exercising jurisdiction to fix the amount of such debts no longer exists as the adjudication of nondischargeability has been accomplished, and the fixing of the amounts of the debt that come due later is not part and parcel of the function of determining dischargeability. It sufficed to declare that certain amounts that became due in the future would be of a nondischargeable character.
Commonwealth contends that its motion is one under Fed.R.Civ.P. 60(b) to amend the Judgment to include additional fees incurred in enforcing the amounts declared to be nondischargeable and awarded by the Judgment, and that such relief is necessary to avoid any defense that the right to attorney's fees pursuant to the Agreement merged into the Judgment and was no longer enforceable. But the doctrine of merger is a judge-made rule, and another court would be free to treat merger as inapplicable to it if the doctrine would be inapplicable to this court, and this court no longer has subject matter jurisdiction. To the extent that attorney's fees incurred in collecting amounts fixed by the Judgment as claims payable under the Agreement were intended to be recoverable as an incident of prosecuting such claims, the doctrine of merger ought not be an obstacle. See Seibel v. Paolino, 249 B.R. 384, 386 (E.D. Pa. 2000) (awarding attorney fees incurred in efforts to collect judgment under Title VII of the Civil Rights Act of 1964 through bankruptcy dischargeability proceedings).
Accordingly, an order follows dismissing Commonwealth's Petition for Attorney's Fees for lack of subject matter jurisdiction except for the issue addressed next of whether the Judgment created a right to recover attorney's fees.
III
To the extent that Commonwealth is seeking a determination that this court held in its Judgment that Commonwealth would be entitled to recover attorney's fees in enforcing the Judgment, there would be subject matter jurisdiction to determine that issue. The Judgment did not purport to decree what attorney's fees the plaintiffs would be entitled to recover as a matter of nonbankruptcy law. It decreed that "[r]easonable attorney's fees incurred in successfully prosecuting already or in the future any of the other nondischargeable claims" would be nondischargeable as well. The Judgment did not purport to decree that attorney's fees incurred in successfully prosecuting such nondischargeable claims would be recoverable.
IV
On the merits, Commonwealth has not shown an entitlement to recover attorney's fees. Commonwealth invokes the Judgment and the Agreement between Salata and Hudson in claiming that its attorney's fees are nondischargeable and may be recovered by it.
A.
As to the provision in the Judgment that "[r]easonable attorney's fees incurred in successfully prosecuting already or in the future any of the other nondischargeable claims set forth [in the Judgment]" were nondischargeable as well, that provision (as discussed in part III, above) did not purport to decree when, as a matter of nonbankruptcy law, attorney's fees would be recoverable. The Judgment itself could not serve as a basis for finding an entitlement under nonbankruptcy law to recover attorney's fees.
B.
That leaves the Agreement as the only possible source for recovering attorney's fees. Under the so-called American rule, parties generally bear their own attorney's fees. An exception is when the parties have reached an agreement shifting attorney's fees, and here Commonwealth can only point to the Agreement.
1.
The attorney's fees sought by Commonwealth are not attorney's fees incurred by the plaintiffs with respect to successfully enforcing other obligations under the Agreement that became due after August 15, 1995. Instead, they are attorney's fees incurred by a title insurer (1) in dealing with the judgment lien arising from the Judgment that was not paid off prior to the conveyance of the debtor's property to an insurer, (2) in acquiring the Judgment from the plaintiffs in order to give clear title to the purchasers of the real property, and (3) in pursuing collection of the Judgment once it acquired the Judgment. Only the third category, fees incurred in pursuing collection of the Judgment after it was assigned to Commonwealth on June 19, 2006, could arguably give Commonwealth a right to recover attorney's fees under the Agreement.
2.
As to fees relating to nondischargeable obligations that had come due by August 15, 1995, Hudson's Agreement with Salata only obligated him as follows regarding attorney's fees:
13.1 The parties agree to submit to the Court the question of who will be responsible for payment of the parties' attorneys' fees incurred in the litigation of this matter.
13.2 Should either of the parties hereafter default or breach any of the terms of this Agreement, or seek to rescind or modify it (except as permitted by the Agreement), the prevailing party, if any, shall be entitled to suit money, including reasonable attorney's fees, incurred in securing the defaulting party's compliance with the provisions of this Agreement. Such rights shall be in addition to any and all other damages arising from the conduct of the defaulting party.
Paragraph 13.1 relates to deciding which spouse in litigation over the Agreement would be awarded fees. Commonwealth's attorney's fees are not being incurred in litigation between the spouses over the Agreement. The provision for the parties to "submit to the Court the question of who will be responsible for payment of the parties' attorneys' fees incurred in the litigation of this matter" had in mind the Superior Court which would be addressing the incorporation of the Agreement as part of the divorce decree. Paragraph 13.2 relates to "suit money, including reasonable attorney's fees, incurred in securing the defaulting party's compliance with the provisions of this Agreement." As the more specific provision regarding defaults in paying monetary obligations under the Agreement, paragraph 13.2, not paragraph 13.1, is the paragraph of relevance here.
2.
Salata successfully prosecuted to judgment her claims that had come due as of August 15, 1995, and obtained an award of attorney's fees incurred in obtaining that monetary judgment. That is the only extent to which she or Commonwealth was ever a prevailing party in litigation regarding a default by Hudson (whether under the Agreement or the Judgment), and the only extent to which she or Commonwealth became entitled to "suit money, including reasonable attorney's fees incurred in securing the defaulting party's compliance with the provisions of [the] Agreement." The Agreement did not permit a recovery of attorney's fees incurred in pursuing amounts owed to Salata once those amounts were reduced to a monetary judgment if they were not incurred in successful pursuit of litigation such as to constitute "suit money." The Agreement here plainly contemplated that only "suit money . . . incurred in securing the defaulting party's compliance" with the Agreement would give rise to a right to recover attorney's fees. Commonwealth is not entitled to recover fees it incurred in pursuit of enforcement of the Judgment if those efforts did not secure Hudson's compliance with the Agreement (whose paragraph 13.2 it contends is enforceable by it incident to its acquisition of the Judgment).
Except for Commonwealth's unsuccessful attempt to employ a writ of garnishment, Commonwealth's papers in this adversary proceeding point to no other court proceeding to enforce compliance with the Judgment. Moreover, Commonwealth's papers are devoid of any allegation that it has succeeded in securing Hudson's compliance with the Judgment. Accordingly, there is no basis for awarding Commonwealth attorney's fees even if it is entitled to invoke Salata's rights under the Agreement.
3.
Even if the Agreement permitted Salata to recover amounts incurred in enforcing the Judgment, that does not entitle Commonwealth to recover amounts incurred in enforcing the Judgment. As to the monetary judgments included in the Judgment, Salata was protected by a judgment lien on Hudson's property, and she had no need to pursue litigation relating to the Agreement in order to obtain amounts owed under the Judgment. Commonwealth succeeded to Salata's Judgment, but beyond that, Commonwealth did not succeed to Salata's rights under the Agreement. Salata did not assign her rights under the Agreement to Commonwealth, and, indeed, she would never have had an occasion to invoke the Agreement because her judgment lien fully protected her. Salata had no reason to assign her rights under the Agreement to Commonwealth: her claims were satisfied via Commonwealth's purchase of the Judgment without the necessity of assigning her rights under the Agreement as well. Indeed, if Salata were to recover a judgment for support obligations that Hudson failed to pay in the future, her interests (as a creditor of Hudson competing with Commonwealth as a creditor of Hudson) might be to minimize the amounts that Commonwealth could recover incident to the assignment to it of the Judgment. Like the plaintiffs, Commonwealth could have enforced the judgment lien in order to collect the Judgment, but its obligations as a title insurer obligated it instead to release the judgment lien.
Nevertheless, I will not rest my decision on that ground as an argument exists, which the parties have not adequately addressed, that the holder of a judgment who is entitled to recover attorney's fees in enforcing that judgment ought to be allowed to assign that judgment in a manner maximizing the amount received by way of such assignment, and that the amount would not be maximized if the right to recover fees for enforcing the judgment is lost upon assignment. Particularly in the context of civil rights judgments, depriving the judgment-holder of the ability to assign that right as an incident of assignment of the judgment would appear to be contrary to congressional intent. See Seibel v. Paolino, 249 B.R. at 386 (awarding attorney fees incurred in efforts to collect judgment under Title VII through bankruptcy dischargeability proceedings). And the same reasoning could apply as well to judgments for spousal support obligations where nonbankruptcy law might similarly have a policy of maximizing the amount that can be obtained via assignment of a judgment, and there is no indication on this record that Salata did not intend to permit Commonwealth to succeed to her right under the Agreement to recover attorney's fees in enforcing the Judgment. In any event, Commonwealth might seek to have Salata assign it that right, and moot this issue.
4.
Commonwealth has permitted the Judgment to lapse by reason of failure timely to revive the Judgment. Commonwealth cannot now collect the Judgment. Thus, even if (1) Commonwealth's acquisition of the Judgment had invested it with Salata's rights under the Agreement, and (2) the Agreement entitled Salata to recover attorney's fees in successfully enforcing the Judgment by treating failure to pay the Judgment as a continuing default under the Agreement, those rights would gain Commonwealth nothing because it no longer is entitled to enforce the Judgment, the sole basis upon which it premises its argument that it succeeded as well to Salata's rights under the Agreement. Even if Commonwealth is entitled to recover attorney's fees for securing Hudson's compliance with the Agreement, it no longer has a vehicle (an enforceable judgment) that entitles it to pursue such compliance. There is thus no reason to keep this proceeding open pending future attempts by Commonwealth to enforce the Judgment.
V
Commonwealth's real beef with Hudson is for his having failed to disclose the judgment lien in his affidavit submitted at the closing of the sale of his real property. As to claims arising therefrom, including Commonwealth's claim that Hudson agreed to indemnify it for losses arising from any false affidavit, this court lacks subject matter jurisdiction. That claim did not exist prepetition, and did not arise in the bankruptcy case, or under the Bankruptcy Code, and its adjudication would have no impact on the administration of the bankruptcy case. Accordingly, under 28 U.S.C. § 1334(b), this court lacks jurisdiction over any claim based on the false affidavit.
VI
A judgment follows dismissing Commonwealth's Petition for Attorney's Fees (1) for failure to state a valid claim upon which relief can be granted regarding any contention that the Judgment created a right for it to collect attorney's fees incurred in enforcing the Judgment, and (2) with respect to all other claims, for lack of subject matter jurisdiction.
[Signed and dated above.]
The decision below is signed as a decision of the court.