Opinion
Bankruptcy No. 09 B 49694 Adversary No. 10 A 00482
12-11-2012
In re: DAWN CAVAGNETTO, Debtor. WILLIAM STOLZ, Plaintiff, v. DAWN CAVAGNETTO, Defendant.
Chapter 7
Judge Donald R. Cassling
MEMORANDUM OPINION
This matter comes before the Court on cross-motions for summary judgment. For the reasons stated herein the Plaintiff's motion is granted. The Court finds that the $7,375.43 debt is nondischargeable under 11 U.S.C. § 523(a)(5) and the $2,202.50 and $1,500.00 debts are nondischargeable under 11 U.S.C. § 523(a)(15). Because the $5,952.85 debt has been satisfied, the Court need not make a determination of whether this debt would be nondischargeable. The Defendant's motion for summary judgment is denied.
I. JURISDICTION AND PROCEDURE
The Court has jurisdiction to entertain this matter under 28 U.S.C. § 1334 and Internal Operating Procedure 15(a) of the United States District Court for the Northern District of Illinois. It is a core proceeding under 28 U.S.C. § 157(b)(2)(F).
II. BACKGROUND
This adversary proceeding arises out of domestic support obligations imposed upon the Defendant, Dawn Cavagnetto ("Cavagnetto"), in the state court marital dissolution lawsuit (the "Divorce Proceedings") she initiated against the Plaintiff William Stolz ("Stolz"). According to the amended complaint (the "Complaint") these obligations are comprised of the following:
1. A credit in the amount of $5,952.85 awarded to Stolz as an offset against future reimbursements payable to Cavagnetto for child care expenses.
2. Attorney's fees in the amount of $7,375.43 awarded to Stolz under 735 111. Comp. Stat. 5/508(b).
3. Attorney's fees in the amount of $2,202.50 awarded to Stolz under 735 111. Comp. Stat. 5/508(b).
4. A sanctions award of $1,500.00 to Stolz against Cavagnetto under Illinois Supreme Court Rule 137, which was based on a state-court complaint for quiet title and fraud filed by Cavagnetto that the state court found to be baseless.
Stolz claims that the first and second of these debts are nondischargeable under 11 U.S.C. § 523(a)(5) and that the third and fourth are nondischargeable under 11 U.S.C. § 523(a)(15). Cavagnetto has asserted a counter-claim against Stolz, alleging that she is entitled to damages arising out of a claim filed against her in her underlying bankruptcy case by a third-party creditor. She asserts that Stolz is liable under that claim as a co-debtor.
On August 18, 2012, Cavagnetto filed her motion for summary judgment (Docket No. 102) ("Cavagnetto's Motion").
On August 20, 2012, Stolz filed his motion for summary judgment (Docket No. 106) ("Stolz's Motion").
III. UNDISPUTED FACTS
Stolz and Cavagnetto were married on September 1, 1996. (Def. 7056-1 Stmt, ¶ 3; Pl. 7056-2 Stmt. ¶ 3.) One child was born of that marriage. (Id.) The parties acquired a parcel of real estate located in Berwyn, Illinois, which, from July 1998 to July 2002, they operated as a rental property (the "Berwyn Property"). (Def. 7056-1 Stmt. ¶ 5; Pl. 7056-2 Stmt. ¶ 5.)
Stolz's mother and step-father, Clare and Fred Barton (the "Bartons") loaned Stolz and Cavagnetto the funds necessary to purchase the Berwyn Property and took a mortgage to secure their loan. (Def. 7056-1 Stmt. ¶¶ 4 & 6; Pl. 7056-2 Stmt. ¶¶ 4 & 6.) Payments on the loan of $503.75 per month came due beginning on April 1, 1996. (Def. 7056-1 Stmt, ¶ 6; Pl. 7056-2 Stmt. ¶ 6.) The Bartons did not record the mortgage until January 2, 2001. (Def. 7056-1 Stmt, ¶ 7; Pl. 7056-2 Stmt, ¶ 7.)
On January 4, 2000, Cavagnetto filed a petition for dissolution of marriage. (Def. 7056-1 Stmt. ¶ 9; Pl. 7056-2 Stmt, ¶ 9.) In January 2004, the state court entered a judgment dissolving the marriage. (Def. 7056-1 Stmt. ¶ 9; Pl. 7056-2 Stmt. ¶ 9.)
The judgment of dissolution required Stolz to pay child support and half of Cavagnetto's work-related daycare expenses. (Def. 7056-1 Stmt. ¶ 10; Pl. 7056-2 Stmt, ¶ 10.) It required Cavagnetto to pay her daycare expenses in the first instance and then to seek reimbursement from Stolz for his half. (Def. 7056-1 Stmt, ¶ 11 A; Pl. 7056-2 Stmt. ¶ 11 A.)
The parties each have two separate paragraphs numbered 11 in their 7056-1 and 7056-1 statements, respectively. The Court will cite to them as 11A and 11B.
On May 16, 2000, Cavagnetto obtained a court order allowing her to sell the Berwyn Property. (Def. 7056-1 Stmt. ¶ 11B; Pl. 7056-2 Stmt. ¶ 11B.) On July 10, 2000, the state court granted Stolz's motion to vacate that order and reconsider the disposition of the Berwyn Property. (Def. 7056-1 Stmt. ¶ 12; Pl. 7056-2 Stmt. ¶ 12.) Thereafter, in early 2002, Stolz sought leave from the state court to sell the Berwyn Property. (Def. 7056-1 Stmt. ¶ 14; Pl. 7056-2 Stmt. ¶ 14.) On February 1, 2002, the state court granted the motion and ordered that the Berwyn Property be listed for sale at fair market value. (Def. 7056-1 Stmt, ¶ 14; Pl. 7056-2 Stmt. ¶ 14.)
Cavagnetto, however, refused to sign the sales agreement for the Berwyn Property, for which the state court held her in contempt and ordered her to pay Stolz $2,202.50 in attorney's fees. (Def. 7056-1 Stmt. ¶ 15; Pl. 7056-2 Stmt. ¶ 15.)
In response to Stolz's motion to sell the Berwyn Property, Cavagnetto also filed a lawsuit seeking to quiet title and alleging that Stolz and the Bartons committed fraud in connection with obtaining the mortgage. (Def. 7056-1 Stmt. ¶ 19; Pl. 7056-2 Stmt. ¶ 19.) In that lawsuit, Cavagnetto argued that the Bartons' mortgage was invalid. (Def. 7056-1 Stmt. ¶ 19; Pl. 7056-2 Stmt, ¶ 19.) That lawsuit was originally filed in the chancery division of the state court, but was then consolidated with the Divorce Proceedings. (Def. 7056-1 Stmt. ¶ 19; Pl. 7056-2 Stmt. ¶ 19.)
Among other things, Cavagnetto claimed her signature on the mortgage documents was a forgery, then she claimed she did not recall signing them. Those arguments were rejected by the state court. (Def. 7056-1 Stmt., Ex. B.)
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After a trial on Cavagnetto's complaint, the state court found her complaint baseless and ordered her to pay Stolz $1,500.00 as a sanction under Illinois Supreme Court Rule 137. (Def. 7056-1 Stmt. ¶ 21; Pl. 7056-2 Stmt, ¶ 21.) Upon resolution of Cavagnetto's complaint, the Bartons received $101,292.08 in proceeds from the sale of the Berwyn Property as payment on their mortgage loan. (Def. 7056-1 Stmt, ¶ 18, 20, & 23; Pl. 7056-2 Stmt. ¶ 18, 20, & 23.)
On August 23, 2006, the state court held a hearing on a motion for contempt filed by Stolz in the Divorce Proceedings claiming that Cavagnetto had submitted false childcare invoices for reimbursement by Stolz. (Def. 7056-1 Stmt. ¶ 32; Pl. 7056-2 Stmt. ¶ 32.) The state court found that Cavagnetto had submitted false invoices and held her in contempt. (Def. 7056-1 Stmt. ¶ 33; Pl. 7056-2 Stmt, ¶ 33.) On October 2, 2006, the state court entered judgment on Stolz's motion and found that he had over-paid his share of daycare expenses in the amount of $5,952.85. (Def. 7056-1 Stmt. ¶ 34; Pl. 7056-2 Stmt. ¶ 34.)
Rather than order Cavagnetto to pay Stolz this amount, the state court gave Stolz a $5,952.85 credit against future daycare expenses. (Def. 7056-1 Stmt, ¶ 34; Pl. 7056-2 Stmt. ¶ 34.) In addition to this credit, the state court ordered Cavagnetto to pay Stolz and/or his attorneys $7,375.43 "as and for contempt findings." (Def. 7056-1 Stmt. ¶ 35; Pl. 7056-2 Stmt. ¶ 35.)
Cavagnetto filed her bankruptcy case on December 31, 2009. (Def. 7056-1 Stmt. ¶ 31; Pl. 7056-2 Stmt. ¶ 31.)
IV. APPLICABLE STANDARDS
A. Summary Judgment
Summary judgment is appropriate when the pleadings, discovery, disclosures, and affidavits establish that there is no genuine issue of material fact and that the movant is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(a) (made applicable by Federal Rule of Bankruptcy Procedure 7056); Winsley v. Cook Cnty., 563 F.3d 598, 602-03 (7th Cir. 2009). A genuine issue of material fact exists when, based upon the evidence, a reasonable trier of fact could find in favor of the nonmoving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). When faced with cross-motions for summary judgment the court views all facts and draws all reasonable inferences in favor of the party against whom the motion is made. Edwards v. Briggs & Stratton Ret. Plan, 639 F.3d 355, 359 (7th Cir. 2011).
B. Exceptions to the Discharge of Debts
The discharge provided by the Bankruptcy Code is meant to effectuate the fresh start goal of bankruptcy relief. Vill. of San Jose v. McWilliams, 284 F.3d 785, 790 (7th Cir. 2002). This privilege is reserved for the "honest but unfortunate debtor," Grogan v. Garner, 498 U.S. 279, 286-87 (1991). Exceptions to discharge are to be construed strictly against the creditor and liberally in favor of the debtor. Goldberg Sec, Inc. v. Scarlata (In re Scarlata), 979 F.2d 521, 524 (7th Cir. 1992). The Seventh Circuit has stated that a § 523(a)(5) exception to discharge is construed more liberally than other § 523(a) exceptions. In re Crosswhite, 148 F.3d 879, 882 (7th Cir. 1998).
C. Sections 523(a)(5) and (a)(15)
Sections 523(a)(5) and (a)(15) of the Bankruptcy Code provide in relevant part:
(a) A discharge under section 727 . . . of this title does not discharge an individual debtor from any debt--11 U.S.C. § 523(a)(5) & (a)(15),
(15) to a spouse, former spouse, or child of the debtor and not of the kind described in paragraph (5) that is incurred by the debtor in the course of a divorce or separation or in connection with a separation agreement, divorce decree or other order of a court of record, or a determination made in accordance with State or territorial law by a governmental unit[.]
. . .
(5) for a domestic support obligation;
. . .
"There is a fine distinction in the provisions for exception to discharge under sections 523(a)(5) and (a)(15)." Hebel v. Georgi (In re Georgi), 459 B.R. 716, 719 (Bankr. W.D. Wis. 2011). Section 523(a)(5) excepts a debt from discharge if it is a domestic support obligation. A domestic support obligation includes a debt that is owed to or recoverable by a spouse. 11 U.S.C. § 101(14A)(A) (emphasis added). Section 523(a)(15), on the other hand, excepts a debt to a spouse., (emphasis added) "[A] debt to a spouse and one recoverable by a spouse in the context of divorce related obligations is a distinction without a difference, and they mean the same thing." Georgi, 459 B.R. at 719.
Section 523(a)(5) sets out four requirements that must be met for a debt to be nondischargeable: (1) the underlying debt must be owed to or recoverable by the debtor's former spouse; (2) the debt must be in the nature of alimony, maintenance, or support; (3) the debt must have been established by a court order; and (4) the debt must not have been assigned to a governmental unit. Aldrich v. Papi (In re Papi), 427 B.R. 457, 462 (Bankr. N.D. Ill. 2010). The creditor bears the burden of proving these elements by a preponderance of the evidence. Crosswhite, 148 F.3d at 881.
By contrast, § 523(a)(15) governs the dischargeability of property settlement debts as opposed to support obligations. This exception was intended to negate the distinction between support and property division provisions (except in Chapter 13 cases) by making both support and nonsupport debts nondischargeable. Georgi, 459 B.R. at 720. All debts owed to a spouse, former spouse, or child of a debtor are nondischargeable if incurred in the course of a marital dissolution proceeding. Zimmermann v. Hying (In re Hying), 477 B.R. 731, 735 (Bankr. E.D. Wis. 2012); Tarone v. Tarone (In re Tarone), 434 B.R. 41, 48 (Bankr. E.D.N.Y. 2010). "In individual Chapter 7 and 11 cases the distinction between a domestic support obligation and other types of obligations arising out of a marital relationship [such as an award of attorneys' fees] is of no practical consequence in determining the dischargeability of the debt. . . ." Tarone, 434 B.R. at 48 (internal quotation omitted).
Attorney's fees awarded directly to the attorney in a marital dissolution proceeding and related litigation are nondischargeable under § 523(a)(5). Papi, 427B.R. at 464; landau & Assocs., P.C. v. Fricke (In re Fricke), Bankr. No. 10 B 05426, Adv. No. 10 A 01170, 2010 WL 5475808, at *2-3 (Bankr. N.D. Ill. Dec. 30, 2010). Moreover, attorney's fees awarded in connection with post-dissolution contempt proceeding are also nondischargeable. Hying, 477B.R. at 735; Koscielski v. Koscielski (In re Koscielski), Bankr. No. 10 B 72304, Adv. No. 10 A 96056, 2011 WL 338634, at *2 (Bankr. N.D. Ill. Jan. 31, 2011) (finding debt nondischargeable under § 523(a)(15).
V. DISCUSSION
As previously stated, the Complaint seeks nondischargeability of four separate debts under either § 523(a)(5) or § 523(a)(15), which debts are the subject of the instant cross-motions for summary judgment. The Court will take each one in turn. 1. Count I - Nondischargeability under §523(a)(5)
a. The $5,952.85 debt
On October 2, 2006, judgment was entered in the Dissolution Proceeding against Cavagnetto and in favor of Stolz in the amount of $5,952.85. This judgment represented monies that Stolz overpaid for daycare expense reimbursements to Cavagnetto as a result of her submission to him of false and fraudulent invoices from two daycare providers. (Def. 7056-1 Stmt., Ex. V.) The order further provided that this amount was a credit for or offset of any daycare obligations of Stolz.
Cavagnetto argues that this judgment has already been satisfied. In response, Stolz contends that Cavagnetto has failed to submit to him the relevant invoices related to daycare expenses subsequent to the state court's order of October 2, 2006. Based upon the evidence presented (specifically, the daycare provider invoices and the corresponding affidavit of its principal), the Court finds that there is no material issue of fact and that the daycare expense credit has been exhausted. (Def. 7056-1 Stmt., Ex. W.) Thus, because the judgment has been satisfied, the Court need not make a determination of whether the debt would be nondischargeable.
b. The $7,375.43 debt
The state court's order of October 2, 2006, also awarded attorney's fees in favor of Stolz and/or his attorney in the Dissolution Proceeding in the amount of $7,375.43 under 750 Ill Comp. Stat. 5/508(b). (Def. 7056-1 Stmt., Ex. V.)
Most courts have held that awards of attorney's fees incurred by a former spouse in divorce court are nondischargeable under § 523(a)(5). Papi, 427 B.R. at 463-64. This is so even where the attorney's fees in divorce cases were awarded directly to the attorney and not to the debtor. Id.
The Court finds that Cavagnetto's obligation to pay Stolz's attorney's fees for services rendered in obtaining rulings in connection with their child's welfare is a nondischargeable debt under § 523(a)(5).
2. Count II - Nondischargeability under § 523(a)(15)
a. The $2,202.50 debt
On February 17, 2004, the state court ordered Cavagnetto to pay the sum of $2,202.50 to Stolz under 750 Ill. Comp. Stat. 5/508(b). (Def. 7056-1 Stmt., Ex. J.) The basis for the award was set forth in a letter opinion dated February 4, 2004. (Pl. 7056-1 Stmt., Ex. K.) In that opinion Cavagnetto was found in civil contempt of court and Stolz was awarded his reasonable attorney's fees.
It is undisputed that the attorney's fees awarded by the state court are a debt that was incurred by the debtor in the course of the Dissolution Proceeding. Thus, the obligation is nondischargeable under § 523(a)(15).
b. The $1,500.00 debt
Subsequent to the hearing on the rule to show cause initiated by Stolz in the Dissolution Proceeding, Stolz filed a motion for sanctions against Cavagnetto under Illinois Supreme Court Rule 137. The state court granted that motion and awarded Stolz the sum of $1,500.00 as a sanction against Cavagnetto. (Def. 7056-1 Stmt., Ex. N.)
It is undisputed that the state-court sanction of Cavagnetto is a debt incurred by her in the course of the Dissolution Proceeding. Thus, the obligation is nondischargeable under § 523(a)(15).
3. Cavagnetto's Counterclaim
Cavagnetto claims she has been injured in the amount of $5,243.39, which represents an amount equal to what the surplus of her bankruptcy estate would have been if the Bartons had not filed their claim in her bankruptcy case. She further contends that if the Court allows the Bartons' claim, the estate would be damaged in the sum of $26,281.29, an amount equal to the pro-rata share that the trustee would be required to pay on the Bartons' claim. She contends that Stolz is liable to her and to the estate for all liability arising out of the Bartons' claim.
The parties have not moved for summary judgment with respect to Cavagnetto's counterclaim. Accordingly, that matter will be set for a status hearing on January 4, 2013 at 10:00 a.m.
VI. CONCLUSION
For the foregoing reasons, Stolz's motion for summary judgment is granted. The Court finds that the $7,375.43 debt is nondischargeable under § 523(a)(5) and the $2,202.50 and $1,500.00 debts are nondischargeable under § 523(a)(15). Because the $5,952.85 debt has been satisfied, the Court need not make a determination of whether this debt would be nondischargeable. Cavagnetto's motion for summary judgment is denied. A status hearing will be held on Cavagnetto's counterclaim on January 4, 2013 at 10:00 a.m.
ENTERED:
____________________________
Donald R. Cassling
United States Bankruptcy Judge