Permissive Bankruptcy Abstention and Domestic Relations Part II

Journal Issue

Nov 2001

Column Name

Journal HTML Content

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).<a href="#1" name="1a">1</a> 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.<a href="#2" name="2a">2</a> The bankruptcy court reasoned that it was the appropriate forum to
determine whether the obligations contained in the settlement agreement were
non-dischargeable.<a href="#3" name="3a">3</a> 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 <a href="http://www.westlaw.com/find/default.asp?rs=CLWP2.1&vr=1.0&cite=…
U.S.C. §523(a)(5)</a>. As stated above, this determination is one of
federal bankruptcy law, and is properly before this court.<a href="#4" name="4a">4</a>

An interesting case in which a bankruptcy court denied a motion for permissive
abstention is Weinberg v. Boyle (In re Weinberg).<a href="#5" name="5a">5</a> 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.<a href="#6" name="6a">6</a> Finding that the policies
underlying permissive abstention were absent, the court stated:

<blockquote>
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.

<a href="http://www.westlaw.com/find/default.asp?rs=CLWP2.1&vr=1.0&cite=…; at 482</a>; <a href="http://www.westlaw.com/find/default.asp?rs=CLWP2.1&vr=1.0&cite=… v. White, 851 F.2d 170, 173 (6th
Cir.1988)</a>; <a href="http://www.westlaw.com/find/default.asp?rs=CLWP2.1&vr=1.0&cite=… v. Robinson, 741 F.2d 1112 (8th
Cir.1984)</a>; <a href="http://www.westlaw.com/find/default.asp?rs=CLWP2.1&vr=1.0&cite=… re El-Amin, 126 B.R. 855, 858 (Bankr.
E.D. Va. 1991)</a>. 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.<a href="#7" name="7a">7</a>

</blockquote>

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.<a href="#8" name="8a">8</a> The court stated:

<blockquote>
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.<a href="#9" name="9a">9</a>
</blockquote>

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.<a href="#10" name="10a">10</a> 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.<a href="#11" name="11a">11</a>

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.

<hr>
<h3>Footnotes</h3>

<a name="1">1</a> <a href="http://www.westlaw.com/find/default.asp?rs=CLWP2.1&vr=1.0&cite=… B.R. 883 (Bankr. S.D. Ohio 1996)</a>. <a href="#1a">Return to article</a>

<a name="2">2</a> <a href="http://www.westlaw.com/find/default.asp?rs=CLWP2.1&vr=1.0&cite=…; at 885</a>. <a href="#2a">Return to article</a>

<a name="3">3</a> <a href="http://www.westlaw.com/find/default.asp?rs=CLWP2.1&vr=1.0&cite=…; <a href="#3a">Return to article</a>

<a name="4">4</a> <a href="http://www.westlaw.com/find/default.asp?rs=CLWP2.1&vr=1.0&cite=…; <a href="#4a">Return to article</a>

<a name="5">5</a> <a href="http://www.westlaw.com/find/default.asp?rs=CLWP2.1&vr=1.0&cite=… B.R. 286 (Bankr. D. S.D. 1993)</a>. <a href="#5a">Return to article</a>

<a name="6">6</a> <a href="http://www.westlaw.com/find/default.asp?rs=CLWP2.1&vr=1.0&cite=…; at 295</a>. <a href="#6a">Return to article</a>

<a name="7">7</a> <a href="http://www.westlaw.com/find/default.asp?rs=CLWP2.1&vr=1.0&cite=…; at 294</a>. <a href="#7a">Return to article</a>

<a name="8">8</a> <a href="http://www.westlaw.com/find/default.asp?rs=CLWP2.1&vr=1.0&cite=…; <a href="#8a">Return to article</a>

<a name="9">9</a> <a href="http://www.westlaw.com/find/default.asp?rs=CLWP2.1&vr=1.0&cite=…; <a href="#9a">Return to article</a>

<a name="10">10</a> The court stated:
<blockquote>
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.
</blockquote>
<a href="http://www.westlaw.com/find/default.asp?rs=CLWP2.1&vr=1.0&cite=…; at 295</a>. <a href="#10a">Return to article</a>

<a name="11">11</a> <a href="http://www.westlaw.com/find/default.asp?rs=CLWP2.1&vr=1.0&cite=…; <a href="#11a">Return to article</a>

Journal Authors

Carlos J. Cuevas

Theodore P. Kaplan

Journal Date

Thursday, November 1, 2001 - 12:00

Bankruptcy Rule

2001