Case No. 98-10398, Chapter 7, Adversary No. 99-2005United States Bankruptcy Court, D. Wyoming
January 26, 2000
DECISION ON CROSS MOTIONS FOR SUMMARY JUDGMENT
PETER McNIFF, United States Bankruptcy Judge.
In this adversary proceeding, the parties’ motions for summary judgment came before the court for hearing on December 29, 1999. The court has considered the arguments of the parties, the admissible evidence and the applicable law, and is prepared to rule.
The plaintiffs, Loretta, Amy, Tamara, Rodger, Jr. and Stephanie Wood, filed their complaint stating six claims for relief. In their motion for summary judgment, the plaintiffs seek judgment on all claims. Rodger Whitman Wood, the debtor/defendant, seeks summary judgment in his favor on all claims against him, except a child support obligation created by a divorce decree.
JURISDICTION
The court has jurisdiction over this adversary proceeding pursuant to 28 U.S.C. § 157 and 1334. This is a core proceeding within the definition of § 157(b)(2)(I).
UNDISPUTED FACTS
Loretta Wood and the debtor were formerly married. During the marriage, the debtor adopted Ms. Wood’s natural children, Amy and Tamara. Rodger, Jr. and Stephanie are the natural children of Loretta Wood and the debtor.
On December 1, 1994, Mr. Wood pled guilty to three counts of taking indecent liberties with a minor in violation of Wyoming Statute §14-3-105 (Lexis 1999). That statute provides that “any person taking immodest, immoral or indecent liberties with any child . . . is guilty of a felony.”
Mr. Wood was convicted on December 12, 1994 (Criminal Conviction) and sentenced. The guilty plea was entered on his admission of improper conduct with Amy Wood, but he denies any illegal conduct with regard to Tamara Wood.
On September 15, 1995, Loretta Wood was granted a divorce from Rodger Wood. The Divorce Decree specifically created a child support obligation in the amount of $930 per month.
The Divorce Decree also created judicial liens on the sale proceeds of the parties’ marital residence and on “any and all retirement accounts and/or thrift accounts held in the Defendant’s (Rodger Wood) name or for the benefit of the Defendant, from any and all employers of the Defendant, for the purpose of securing payment of present and future child support obligations.” The residence was sold and the proceeds divided in accordance with the Divorce Decree. Each party was ordered to pay “their own attorney fees for professional services rendered herein or to be rendered on account of services in connection with the marital difficulties between the parties and all services in connection with the divorce case.”
On May 16, 1995, Loretta, Amy and Tamara Wood filed a civil complaint against Mr. Wood. Among other things, the complaint stated claims for relief on behalf of each plaintiff for intentional infliction of emotional distress and negligence, and battery claims on behalf of Amy and Tamara. The complaint alleged that Mr. Wood had taken indecent liberties with both daughters.
On May 2, 1996, the state court approved a Stipulation of Settlement in the tort case, whereby Mr. Wood confessed judgment on the negligence claim for relief. A judgment (Judgment Upon Stipulation) was entered in the total amount of $750,000; in favor of Amy in the amount of $450,000, Tamara of $250,000 and Loretta Wood in the amount of $50,000. The parties agreed to pay their own attorney fees.
Mr. Wood agreed to partial payment on the judgment from his portion of the residence sale proceeds and from his retirement funds. In order to reach the retirement funds, qualified domestic relations orders (QDRO) were necessary and those had to be issued in a domestic relations proceeding. The parties agreed to modify the Divorce Decree to the extent necessary for entry of the QDROs. They also agreed to release the liens securing child support in order to facilitate and effectuate the partial payment due under the Judgment Upon Stipulation. They also agreed the remainder of Mr. Wood’s retirement funds were exempt from execution of the Judgment Upon Stipulation.
The state court modified the divorce decree by order entered May 9, 1996 (Modified Decree). The QDROs were issued the same date and have been paid. The plaintiffs received $47,860.52 from the retirement funds and $41,771.36 in cash from Mr. Wood’s sale proceeds. The money was not applied in proportion to the judgment amounts. In fact, Loretta Wood had the smaller judgment and received the larger amount of the proceeds.
The parties also engaged in an agreed proceeding to terminate Mr. Wood’s parental rights. At its conclusion, the court entered a Judgment for Partial Attorney’s Fees and Costs of $1,279.70 against Mr. Wood. Those fees are apparently unpaid.
Further litigation occurred. On September 26, 1997, the domestic relations court entered judgment against Mr. Wood for past due child support. (Contempt Order). The court denied Mr. Wood’s motion to modify the monthly support amount.
Mr. Wood appealed the Contempt Order to the Wyoming Supreme Court and posted a bond. That court reversed the monthly child support ruling, and remanded on the issue of whether the district court could place a lien on Mr. Wood’s retirement funds as security for his child support obligations. Wood v. Wood, 964 P.2d 1259 (Wyo. 1998).
On remand, the domestic relations court entered a March 8, 1999 order setting the child support at $629.28 per month and granting Ms. Wood a $500 attorney fee. The court also ordered that the supersedeas bond posted by Mr. Wood was to be distributed first to Ms. Wood for past due child support, and the remainder to Randy Royal, the chapter 7 trustee of Mr. Wood’s estate. Apparently, all the funds owed by Mr. Wood under this order were paid from the bond.
In the meantime, on October 26, 1998, Mr. Wood filed his chapter 7 bankruptcy petition. On June 21, 1999, Ms. Wood filed her own chapter 7 petition in South Dakota. Evidently, the state court has yet to determine the remanded issues relating to the liens allegedly encumbering the retirement accounts.
CONCLUSIONS OF LAW Standards for Summary Judgment
Summary judgment is appropriate when the moving party can demonstrate, by evidence in the record, an absence of a genuine issue of material fact. In re Baum, 22 F.3d 1014, 1016 (10th Cir. 1994). A material fact is one that could affect the outcome of the litigation and requires a trial to resolve the different versions of the truth. White v. I.R.S., 790 F. Supp. 1017, 1021 (D.Nev. 1990).
A genuine issue is one where the evidence is such that a reasonable jury could return a verdict for the non-moving party. Farthing v. City of Shawnee, Kan., 39 F.3d 1131, 1134 (10th Cir. 1994). The court must view the evidence in the light most favorable to the nonmoving party, but that party cannot rest on mere allegations but must come forward with evidence to raise a genuine issue. Id.
Supersedeas Bond and Exemption Issues
The plaintiffs’ fourth and fifth claims for relief can be easily addressed. The fourth claim for relief seeks a judgment granting setoff of funds owed Ms. Wood by Mr. Wood against the supersedeas bond and for possession of the bond funds after payment of past due child support. The claim was pleaded before the state court ordered distribution of the bond and has been litigated in Wyoming’s Sixth Judicial District Court. That court ordered the funds turned over to Randy Royal and rejected the claim for set off. The order is res judicata.
Further, Mr. Royal is not a party here. If the plaintiffs have a valid lien on the bond funds, they should take the matter up with the Sixth Judicial District Court and Mr. Royal. This court is not an appellate court for the state domestic relations court.
In the fifth claim for relief, the plaintiffs seek a declaration that Mr. Wood’s retirement accounts are not exempt from his bankruptcy estate and are subject to certain alleged liens. In the underlying bankruptcy case, this court ruled on the issue of whether the retirement plans were exempt from the bankruptcy estate. That question is moot.
The other issues, i.e., whether the state court can order a lien on the retirement funds to secure future child support, and whether the retirement funds are exempt from collection of the Judgment Upon Stipulation, should be litigated in the state court forum if the claims are nondischargeable. The fourth and fifth claims for relief will be dismissed from this adversary proceeding.
Dischargeability of Judgment Upon Stipulation
The plaintiffs have the burden of proving their claims by a preponderance of the evidence. Grogan v. Garner, 498 U.S. 279, 291
(1991). They first argue that the Judgment Upon Stipulation in favor of Loretta, Amy and Tamara Wood is nondischargeable under 11 U.S.C. § 523(a)(6) as a debt “for willful and malicious injury by the debtor to another entity.” In the alternative they argue the judgment is nondischargeable support under §§ 523(a)(5) (a)(15).
Section 523(a)(6)
The plaintiffs did not provide the court with any legal basis for their conclusion that the Judgment Upon Stipulation falls within § 523(a)(6), other than to point out that Mr. Wood’s conduct was reprehensible. The court presumes they seek to give collateral estoppel effect to the Judgment Upon Stipulation or the Criminal Conviction, or on the basis of Mr. Wood’s admissions related to the Criminal Conviction.
The court agrees with the defendant that the transcript of the debtor’s admissions at the plea bargain hearing, the presentence report and the psychologist’s report are not authenticated. Regardless, this matter can be decided without that evidence.
Because the bankruptcy court has exclusive jurisdiction to determine dischargeability under both § 523(a)(5) (a)(6), the doctrine of claim preclusion (res judicata) is not effective in a dischargeability action. Brown v. Felsen, 442 U.S. 127 (1979). However, issue preclusion (collateral estoppel) is applicable. Grogan v. Garner, 498 U.S. at 284
n. 11.
Collateral estoppel may well apply to the Judgment Upon Stipulation, but it does not establish the elements of a § 523(a)(6) claim. The civil judgment liquidated the damages due each of the three plaintiffs, but only on the negligence counts. There are no findings of willful and malicious misconduct.
However, the Criminal Conviction established that Mr. Wood took immoral and indecent liberties with Amy Wood. Indecent liberties is defined as “improper behavior toward a child, especially of a sexual nature.”Black’s Law Dictionary, 772 (7th ed. 1999). In all the reported cases under § 14-3-105 reviewed by this court, the conduct involved improper sexual touching against a child.
The court must decide whether such conduct is willful and malicious within the meaning of § 523(a)(6). In the recent United States Supreme Court case of Kawaauhau v. Geiger, 523 U.S. 57, 118 S.Ct. 974, 977 (1998), the Court ruled that the word “willful” in § 523(a)(6) requires proof of a deliberate or intentional injury, not merely a deliberate or intentional act which results in injury.
In defense of the claim, Mr. Wood relies on the decision in Kawaauhau
and on his affidavit filed here. He states that he did not intend to cause injury to Amy. He argues that a trial is necessary to establish requisite intent.
The facts in this case are dissimilar from those in Kawaauhau. In that case, the creditor had a negligence judgment against the debtor for medical malpractice which was not sufficient to support a claim for willful and malicious conduct. This case is clearly distinguishable fro Kawaauhau. Despite the judgment of negligence, Mr. Wood’s conduct with regard to Amy was not only reckless and negligent. His conduct was deliberate and the resulting injury was obvious. See In re Longley, 235 B.R. 651, 657 (10th Cir. B.A.P. 1999).
In a case factually similar to this, a bankruptcy court ruled that an intentional tort satisfies the intent requirement of Kawaauhau. In re Halverson, 226 B.R. 22 (Bankr.D.Minn. 1998). So too here, the Criminal Conviction is sufficient to establish the elements of an intentional tort or willful conduct.
The very conduct to which Mr. Wood pleaded guilty is conduct which he knew would lead to harm and injury. He intended the offensive sexual conduct for his own self gratification. The intent element of § 523(a)(6) can be presumed under the record in this case. The court can think of little conduct more willful and malicious than the sexual abuse of a child. With regard to the § 523(a)(6) claim of Amy Wood, the case of Kawaauhau is no defense.
Mr. Wood argues two other defenses to the § 523(a)(6) claim similar to arguments previously reviewed and ruled upon by this court. Mr. Wood contends the negligence judgment precludes the plaintiffs from raising a willful and malicious misconduct claim in this court because of accord and satisfaction, or because of the election of remedies doctrine.
The applicability of a state statute of limitation to a nondischargeability action was addressed by the Tenth Circuit Court of Appeals in In re McKendry, 40 F.3d 331, 337 (10th Cir. 1994); reh’g denied (1994). The court held that a cause of action for fraud under state law is a separate claim from the dischargeability of the debt under bankruptcy law. Thus, the creditor could obtain a judgment based on breach of contract and raise its fraud claims later in the § 523 adversary proceeding.
The ruling is helpful here as well. The underlying judgment which liquidates a debt need not be based on the specific wrongful conduct of the debtor, and the nondischargeability claim does not have to mirror the state law cause of action. See Hidy Honda, Inc. v. Richardson, case no. 96-1001, slip op. at 7-8 (Bankr.D.Wyo. January 17, 1997).
In this case, the Judgment Upon Stipulation established the liquidated damages the debtor owes Loretta, Amy and Tamara Wood, albeit based on the negligence claim for relief. Absent express findings to the contrary which could be given issue preclusive effect, the plaintiffs are not barred from arguing that the liquidated damages should be excepted from discharge based on claims for relief created by the Bankruptcy Code.
Mr. Wood also argues there has been an accord and satisfaction with regard to the Judgment Upon Stipulation. The doctrine is one of contract law and is inapplicable here. Besides, no underlying obligation was extinguished, and the debt hasn’t been satisfied.
The court concludes as a matter of law that the claim of Amy Wood for $450,000 is nondischargeable under § 523(a)(6). However, there are no prior findings and no evidence in the record to support the § 523(a)(6) claims of Loretta and Tamara Wood. The complaint in the tort action pleads some factual grounds for the claims, but that complaint is an insufficient basis for collateral estoppel. Loretta and Tamara Wood are not entitled to judgment as a matter of law and their § 523(a)(6) claims can only be established by a trial on the merits.
Sections 523(a)(5) (a)(15)
The plaintiffs also contend the Judgment Upon Stipulation is nondischargeable under § 523(a)(5) as a debt “to a spouse, former spouse, or child of the debtor, for . . . support of such spouse or child, in connection with a separation agreement, divorce decree or other order of a court of record,” and under § 523(a)(15) which makes nondischargeable non-support obligations incurred in connection with “a separation agreement, divorce decree or other order of a court of record.”
The court agrees with the debtor that §§ 523(a)(5) (a)(15) were not intended by Congress to provide an exception from discharge for damages arises out of tort litigation, absent factual evidence to support the claim. Both sections concern obligations created by domestic relations orders associated with divorce or separation, orders enforcing such obligations, and orders collateral to domestic relations obligations such as attorney fee awards.
Even if those sections create an exception to discharge for claims based on tort liability, the plaintiffs have failed to establish the claims here. Under § 523(a)(5), the plaintiffs must show that the obligation is intended by the parties or the court to constitute support and is actually in the nature of support. In re Sampson, 997 F.2d 717, 721 (10th Cir. 1993). The decision requires a dual inquiry into both the parties’ intent at the time of the decree and into the actual substance of the obligations. Id. at 723.
The plaintiffs rely on the Judgment Upon Stipulation and the QDROs issued in settlement to support the §§ 523(a)(5) (a)(15) claims. Other than the allegations in the complaint filed in this case, there is nothing in the record to support these contentions. The tort complaint contained no allegations relating to support or maintenance. Nor did the stipulation or the judgment.
The purpose of the QDROs is express and obvious. The QDROs were issued from the domestic relations court because that was the only vehicle by which Ms. Wood could reach the debtor’s ERISA qualified retirement plans. There being no evidence of a shared intent to create a support obligation, the defendant is entitled to summary judgment on the §§ 523(a)(5) (a)(15) claims that the Judgment Upon Stipulation is nondischargeable support or maintenance.
Dischargeabililty of Remaining Obligations Child Support Order in Divorce Proceedings
Mr. Wood concedes the child support obligations ordered by the state court in its September 15, 1995 Decree of Divorce, as modified most recently by order dated March 8, 1999, are nondischargeable support obligations under 11 U.S.C. § 523(a)(5). The plaintiffs are entitled to summary judgment on that issue.
None of the attorney fees incurred by Ms. Wood under the Judgment Upon Stipulation or the Divorce Decree are nondischargeable obligations. The plaintiffs have failed to establish that an obligation was created by either judgment or the agreements. The judgments specifically require all parties to pay their own attorneys.
One obligation remains, the attorney fees ordered to be paid by Mr. Wood in connection with the termination of his parental rights. There is nothing in the record, beyond the allegations of the plaintiffs and mere inference, to support that the debt was intended to function as a support obligation. Nor is it clear whether Mr. Wood has paid the fees. The motion for summary judgment must be denied and the matter set over for a trial on the merits.
CONCLUSION
The court will issue a simultaneous judgment in accordance with this order.