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Permissive Bankruptcy Abstention and Domestic Relations Part II

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In Part I (Vol. XX, No. 1, February 2001), we discussed decisions in which courts granted motions for permissive abstention in bankruptcy cases involving domestic relations issues. In Part II, we will discuss decisions in which courts denied motions for permissive abstention in bankruptcy cases involving domestic relations issues.

A pertinent case in which a bankruptcy court denied a motion for permissive abstention is Baker v. Baker (In re Baker).1 In Baker, the debtor's ex-spouse filed a complaint objecting to the discharge of certain obligations contained in a settlement agreement that was incorporated into a divorce decree. Thereafter, the debtor's ex-spouse filed a motion for abstention so that she could pursue her objections of non-dischargeability in state court. The bankruptcy court denied the motion for abstention.2 The bankruptcy court reasoned that it was the appropriate forum to determine whether the obligations contained in the settlement agreement were non-dischargeable.3 The court stated:

While the DeKalb County court still has before it a motion for attorneys' fees and expenses, the resolution of that motion will not affect the property interests in a determination of dischargeability. As such, the mere fact that the proceeding arose out of a domestic relations matter is an insufficient basis for this court to invoke the exceptional remedy of abstention. The only remaining issue, therefore, is a legal determination of dischargeability under 11 U.S.C. §523(a)(5). As stated above, this determination is one of federal bankruptcy law, and is properly before this court.4

An interesting case in which a bankruptcy court denied a motion for permissive abstention is Weinberg v. Boyle (In re Weinberg).5 There, the debtor had filed for chapter 11 protection. The debtor filed an adversary proceeding for turnover of property and the rejection of a property settlement agreement. The property settlement agreement distributed various real property and partnership holdings between the debtor and his ex-spouse. The debtor's ex-spouse made a motion for abstention.

The bankruptcy court denied the motion for abstention.6 Finding that the policies underlying permissive abstention were absent, the court stated:

Commonly, decisions of voluntary abstention are based on fact patterns that include pending divorce litigation, unresolved motions to modify child support obligations, or disputes over awards of alimony, which lead to the generalization that matters concerning domestic relations are best resolved by state courts. Id. at 482; White v. White, 851 F.2d 170, 173 (6th Cir.1988); Boyd v. Robinson, 741 F.2d 1112 (8th Cir.1984); In re El-Amin, 126 B.R. 855, 858 (Bankr. E.D. Va. 1991). In this case, however, there is no pending divorce and no modification battle over alimony or support inasmuch as the PSA did not provide for these items, nor is there any remaining mystery as to how the marital assets will be divided. The parties entered into an agreed-upon division of property which was approved by the state court when the decree of marriage dissolution was entered. The general rule that instinctively defers matters of family law to alternative state courts in interests of justice, comity, or respect does not easily square with the facts of this case.7

Resolving the debtor's chapter 11 case required a determination of what constituted property of the estate, and thus, resolving the adversary proceeding was essential for the resolution of the debtor's chapter 11 case.8 The court stated:

Debtor's bankruptcy estate is made up of all legal and equitable interests held at the time of filing, part of which are the subject of the PSA and, as such, may be ascertainable by the court as it considers the allegations of the adversary complaint. The provisions of a chapter 11 plan are most properly based on a complete understanding of property belonging to the estate. In this case, the court is not entirely convinced the thrust of the adversary action is an attempt to undo or modify the PSA. Rather, [the] debtor has indicated long-term insolvency [that] compelled this petition to be filed. Where it does not appear the complaint is setting aside adjudicated rights reached by the state court divorce proceeding, but rather is a good-faith attempt to ascertain property of the estate for purposes of a successful and effective reorganization, the court tends to lean away from voluntary abstention.9

The court thought that it was the forum that would most expeditiously determine the pending issues concerning the property settlement agreement, and this was another cogent reason why it should decide the adversary proceeding.10 Another important factor militating against abstention was that interpreting the property settlement agreement would affect the debtor's creditors, and therefore, this was no longer a two-party dispute that should be adjudicated by a state court.11

These cases reflect that permissive abstention is inappropriate when the issue involves the adjudication of a traditional bankruptcy court issue. For example, whether an obligation is dischargeable under Bankruptcy Code §523(a)(5) or (a)(15) is a "core proceeding," and thus, it is within the bankruptcy court's jurisdiction to determine whether the obligation is dischargeable. In determining such issues, a bankruptcy court is effectuating its charge because Congress granted the bankruptcy court jurisdiction to determine whether an obligation is dischargeable. The determination of whether an obligation is dischargeable under Bankruptcy Code §523(a)(5) or (a)(15) does not interfere with an ongoing state court domestic relations proceeding because the state proceeding has been completed. Under these circumstances, exercising federal jurisdiction is proper because a bankruptcy court is adjudicating a "core proceeding" and applying federal law.

In Weinberg, the court declined to abstain because the issue of what constituted "property of the estate" was essential to resolving the corporate reorganization case. Determining the "property of the estate" affected numerous parties, and this was not the typical domestic relations action that was a two-party dispute. The court was concerned that immediate action was imperative for resolution of the chapter 11 case, and that the state court litigation was languishing. There was an important federal interest in retaining jurisdiction over this dispute.

Clearly, the federal courts are averse to adjudicating traditional domestic-relations issues such as marriage dissolution and equitable distribution. There are cogent reasons why a bankruptcy court should not become embroiled in a domestic relations proceeding. Congress has withheld from the bankruptcy courts the jurisdiction to adjudicate domestic relations issues. Indeed, domestic-relations issues are quintessential non-core issues.

Another compelling reason mandating abstention is federalism. The state and federal governments are dual sovereigns, and they must co-exist. Abstention ensures that a federal court will not unnecessarily intrude upon the legitimate operation of the state judiciary. Absent abstention, there is the danger that disgruntled litigants would file bankruptcy petitions to thwart state domestic litigation proceedings, and this would encourage forum shopping. No federal interest would be promoted by interjecting the bankruptcy courts into state domestic relations proceedings.

Abstention, however, is unwarranted when a bankruptcy court is adjudicating a traditional bankruptcy issue such as whether a domestic relations obligation is dischargeable. Congress has vested the bankruptcy court with the jurisdiction to determine whether marital obligations are dischargeable. Bankruptcy judges have the expertise to adjudicate dischargeability issues. Equally significant, the exercise of federal jurisdiction does not interfere with state domestic relations proceedings. The federal judiciary is not interfering with an ongoing state court proceeding; rather, it is reviewing a judgment to determine what obligations are dischargeable under the Bankruptcy Code.


Footnotes

1 195 B.R. 883 (Bankr. S.D. Ohio 1996). Return to article

2 Id. at 885. Return to article

3 Id. Return to article

4 Id. Return to article

5 153 B.R. 286 (Bankr. D. S.D. 1993). Return to article

6 Id. at 295. Return to article

7 Id. at 294. Return to article

8 Id. Return to article

9 Id. Return to article

10 The court stated:

Unfortunately, it appears the Nebraska state court is unable to expeditiously resolve the outstanding questions and concerns [the] debtor and defendant have raised concerning the PSA. Several years have passed since the PSA was final, yet the parties still lack the clarification and determinations sought in the state court forum. On the other hand, this court's calendar is current and is anticipated to remain that way considering the unusually light caseload maintained by the bankruptcy courts in this state. Because the court is concerned with the proper, expeditious administration of this pending bankruptcy reorganization, the adversary matter should be contained in the bankruptcy court forum.
Id. at 295. Return to article

11 Id. Return to article

Journal Date: 
Thursday, November 1, 2001
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