The following is a case update written by Uzzi O. Raanan, a partner at Danning, Gill, Israel & Krasnoff, LLP, analyzing a recent decision of interest:
Deciding a previously unresolved issue, United States Bankruptcy Judge Christopher B. Latham, of the Southern District of California, held that a legal fee award entered in a civil action that is litigated parallel to and intertwined with ongoing dissolution proceedings comes within the scope of a discharge exception under 11 U.S.C. section 523(a)(15), in that it is “in the course of a divorce or separation” or “in connection with [an]… other order of a court of record.” In re Bohrer, 2021 WL 1915991 (Bankr. S.D. Cal. 2021).
To read the full opinion, click here.
Lisa Carroll and Debtor/Defendant Phillip Bohrer were married with a child. In 2007 they filed for divorce and a divorce decree was entered that same year. The decree established child custody and visitation rights, which were continuously revisited and modified through court proceedings held between 2008 and 2018. In 2016, Debtor filed a parallel civil action against his former wife in the civil division of the San Diego Superior Court. He alleged in that action that Ms. Carroll made negative and untrue statements in the family law court to their child, to law enforcement persons, and to others, about his fitness as a parent. Debtor alleged various causes of action, including intentional and negligent infliction of emotional distress and tortious interference with custodial relationship, among other.
Ms. Carroll filed a demurrer and special motion to strike the complaint under California’s Anti-Strategic Lawsuit Against Public Participation (“anti-SLAPP”) statute. She argued that Debtor filed his action in an effort to retaliate against her and to gain unfair advantage in their family law proceedings. The superior court denied Ms. Carroll’s motions, but the California Court of Appeal reversed denial of the anti-SLAPP motion, ordering the trial court to grant the motion in Ms. Carroll’s favor.
On remand, the superior court granted the anti-SLAPP motion, dismissed the civil court action, and awarded Ms. Carroll $44,189.26 in attorneys’ fees and costs. Nine months later, for “reasons unclear,” the family law court awarded Ms. Carroll an additional $5,000 in attorneys’ fees, for a total of $49,189.26 in fees the Debtor owed to Ms. Carroll.
In August 2020, Debtor filed for bankruptcy under Chapter 7 of the Bankruptcy Code. Ms. Carroll filed an adversary action in her former husband’s case, seeking a nondischargeability determination as to the two fee awards, under Sections 523(a)(6) and (a)(15) of the Bankruptcy Code. Debtor filed his answer, and both parties moved for judgment on the pleadings.
The Bankruptcy Court granted Ms. Carroll’s motion, finding that the fee awards come under the exception to discharge in Section 523(a)(15). The Court agreed with Debtor that the debts were not exempted from discharge under Section 523(a)(6).
According to the Court, the elements for establishing a claim under Section 523(a)(15) are:
(1) that the debt in question is owed to a former spouse of the debtor; (2) that the debt is not a support obligation within the meaning of § 523(a)(5); and (3) that the debt was incurred 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.
In re Adam, BAP No. CC-14-1416-PaKiTa, 2015 WL 1530086, at *4 (B.A.P. 9th Cir. Apr. 6, 2015).
The parties agreed that the first two elements were satisfied, leaving the third prong as the only issue in dispute. Noting that this case raises an issue of first impression, and acknowledging the dearth of cases interpreting Section 523(a)(15), the Court began its analysis by examining the statute’s plain meaning.
The third prong of Section 523(a)(15) encompasses two types of debt owed to a former spouse, those arising “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.” As the Bankruptcy Code does not define either “in the course of” or “in connection with,” the Court consulted with general and legal dictionaries for the ordinary meaning of each phrase.
It concluded that “in the course” means, “during the progression or period of a divorce or separation. It operates as a temporal limitation on the dischargeability of debts owed to a former spouse, requiring the debt be incurred during the time when the divorce or separation is ongoing.” It determined that the phrase “in connection with” means a causal or logical relation or sequence, and therefore “operates as a topical limitation, requiring that the debt be logically or causally related to an enumerated document.”
Thus, to the Court the words “course” and “connection” are unambiguous, and therefore the statutory interpretation of Section 523(a)(15) need not proceed further. The word “course” acts as a limitation as to time and “connection” as a limitation on relationship. The Court cited to a number of Ninth Circuit cases for the proposition that each limitation “is broad and may include a wide array of divorce-related debts. Consequently, the court must interpret and apply each statutory phrase broadly. To that point, so long as the debt owed is linked either through time or relation, it is nondischargeable under § 523(a)(15).”
Applying the above legal framework, the Court concluded that the debts held by Ms. Carroll are covered by Section 523(a)(15) because the fees and costs were awarded while the family law proceedings were ongoing, namely before 2018. Thus, the debts were incurred “in the course of a divorce or separation.” Also, the fee awards are directly related to the family law proceedings and would not have arises but for these ongoing proceedings. The debts therefore arose “in connection with a separation agreement, divorce decree, or other order of a court of record.” In short, the debts were temporally and topically linked to the divorce proceedings.
The Court rejected Debtor’s argument that anti-SLAPP motions are procedurally unavailable in family court proceedings, finding no legal authority for the argument. It further rejected the notion that the civil fees award falls outside Section 523(a)(15) because it was entered in the civil division of the superior court, rather than in the family law court. It noted that Section 523(a)(15) does not specifically limit the exception to debts arising in family law courts. Rather, language in that exception is expansive in scope, covering various courts. It concluded that had Congress intended to limit Section 523(a)(15) to family law courts it would have done so.
The Court agreed with Debtor’s argument that the debts in question were not covered by Section 523(a)(6), which exempts from discharge debt “for willful and malicious injury by the debtor to another entity or to the property of another entity.”
This decision is understandable. The civil action harkens to a set of facts related to a divorce. It was filed in 2016, which was about two years before the parties apparently stopped their multi-year revisions of the original divorce decree. Query though whether Section 523(a)(15) was intended to apply indefinitely, or at least until all dealings related to a divorce were completely and unequivocally concluded.
Here, the judgment of dissolution was entered in 2007. What transpired between 2008 and 2018 is not clearly described in the Court’s opinion but may not have risen to the type of proceedings contemplated by Section 523(a)(15). One could argue that this section was intended to exempt debts related to the original divorce proceedings, perhaps those arising before entry of a divorce decree.
Additionally, the factual background provided in the Court’s analysis suggests that the civil action claims involved negative and untrue statements allegedly made by Ms. Carroll about the Debtor to more than just the family law court. These statements were allegedly made to the couple’s child, law enforcement, and “other third parties.” The Court’s analysis appears to suggest that, as long as a married couple has any post-divorce proceedings in the family law court, Section 523(a)(15) will be interpreted extremely broadly to apply to the couple’s dealings with each other.
These materials were written by Uzzi O. Raanan, a partner at Danning, Gill, Israel & Krasnoff, LLP, located in Los Angeles, California, who is a member of the ad hoc group and the representative from the Business Law Section (BLS) to the CLA’s Board of Representatives. Editorial contributions were made by the Honorable Meredith Jury (United States Bankruptcy Judge, C.D. Cal, Ret.), also a member of the ad hoc group. Thomson Reuters holds the copyright to these materials and has permitted the Insolvency Law Committee to reprint them. This material may not be further transmitted without the consent of Thomson Reuters.