VIRGINIA M. HERNANDEZ COVINGTON, District Judge.
This matter comes before the Court pursuant to the State of Florida, Department of Revenue's Appeal of the Bankruptcy Court's August 23, 2010, "Order on Debtor's Motion for Entry of Supplemental Injunction and for Sanctions for Violation of Discharge Injunction Against State of Florida, Department of Revenue—Child Support Enforcement." (B.R. Doc. # 371). In that Order, the Bankruptcy Court "enjoined and prohibit[ed] the State and Maryanne Davis, and any persons acting by or through either of them, including their agents or attorneys, from directly or indirectly enforcing or attempting to enforce the Claim against the Debtor." Id. at 2. As will be discussed, the "Claim" was asserted by the State against Michael Davis for allegedly unpaid child support obligations after confirmation of Mr. Davis's Chapter 11 Bankruptcy Plan.
This Court has considered the briefs of the parties (Doc. ## 7, 17, 18), the State's Notice of Supplemental Authority (Doc. #19), and the record below and reverses the Bankruptcy Court's Order for the reasons that follow.
On February 10, 1997, a Final Judgment of Dissolution of Marriage between Maryanne Davis and Michael Davis was entered in Cook County, Illinois. (B.R. Doc. #316-1). Incorporated by reference into that Final Judgment was an agreement between Maryanne Davis and Michael Davis containing various domestic support obligations concerning the two Davis children. (B.R. Doc. #316-2). On October 20, 2003, the Cook County court entered an order relinquishing jurisdiction to the domestic relations courts of the State of Florida, and the Bankruptcy record contains an order dated August 14, 2008, from the Pinellas County, Florida, Domestic Relations Court domesticating a foreign judgment. (B.R. Doc. # 316-4).
On March 31, 2008, an involuntary Chapter 11 bankruptcy case was filed naming Mr. Davis as the debtor. (B.R. Doc.
Mr. Davis filed his initial Chapter 11 Plan on October 3, 2008, (B.R. Doc. # 113) and filed an Amended Chapter 11 Plan on March 24, 2009. (B.R. Doc. # 225). The Bankruptcy Court confirmed the Amended Chapter 11 Plan on May 20, 2009 (B.R. Doc. 278). Among other salient provisions, the Bankruptcy Court's confirmation order states, "Confirmation of the Plan immediately effectuates the discharge of the Debtor and any and all debts, claims, and demands against the Debtor, whether the subject of filed claims or not. The Court specifically finds cause for the entry of an immediate discharge under Section 1141(d)(5)(A)." (B.R. Doc. # 278 at 5, ¶ 4).
The State of Florida and Maryanne Davis, both having actual notice of the bankruptcy case (including the Claims Bar Date and confirmation of the Plan), did not participate in the bankruptcy case. They did not file any proofs of claim prior to the Claims Bar Date, and they did not participate in any of the hearings leading up to the Plan confirmation. As explained by the Bankruptcy Court, "During the pendency of the Chapter 11 case, Maryanne Davis, for whatever reason, did not participate. She had been originally listed in the Debtor's schedules, had been noticed of the bankruptcy. No one contests that issue. The Department of Revenue similarly had been notified about the pendency of the case." (B.R. Doc. # 318 at 33).
After the passage of the September 29, 2008, Claims Bar Date and after the May 20, 2009, confirmation of the Chapter 11 Plan, the State filed a proof of claim (Claim 10) on June 1, 2009, against Mr. Davis in the amount of $180,000.00 for past due child support payments. Mr. Davis objected to the late-filed Claim.
The Bankruptcy Court held a preliminary hearing on Mr. Davis's objection to the Claim on August 5, 2009. There, Mr. Davis argued that the confirmed Chapter 11 Plan determined that he owes no child support payments: "[T]here's a provision in the plan, Section 6.2, that says that failure to file a claim by the bar date shall constitute an adjudication on the merits of the Debtor's lack of liability, without the need for further objection or court order." (B.R. Doc. # 317 at 6). In essence, Mr. Davis asserted that res judicata and collateral estoppel barred the late-filed child support Claim. Id. at 6-7.
The State, on the other hand, argued: "The State admits the claim is time-barred, it was filed late. For purposes of payment in the plan, not for purposes of determining its dischargeability, because pursuant to the Code, child support is
The Bankruptcy Court determined that further briefing and oral argument was needed and set the matter for oral argument.
(B.R. Doc. # 318 at 37).
The Bankruptcy Court answered the question in the negative and disallowed the Claim for child support as untimely filed. Id. at 44. The Bankruptcy Court followed its oral ruling with a written order dated October 21, 2009: "The Court concludes that the Debtor has no liability for Claim 10." (B.R. Doc. # 356).
Thereafter, the State attempted to collect child support monies from Mr. Davis. Mr. Davis "felt as if the State was clearly acting directly contrary to the plan" and was "dumbfounded." (B.R. Doc. 379 at 9). Mr. Davis filed a motion for an injunction against the State, and the Bankruptcy Court held a hearing. (B.R. Doc. # 379). During the hearing, Mr. Davis took the position that the Bankruptcy Court "disallowed the claim with prejudice and found pursuant to the confirmed plan that the Debtor simply has no liability for the claim." (B.R. Doc. #379 at 10). Mr. Davis further argued that the State's attempt to collect child support was "a violation of the plan," a violation of the Bankruptcy Court's prior orders, and that a "supplemental injunction making it clear that the claim cannot be sought against the Debtor" was needed. Id. at 12.
The State, on the other hand, asserted that its child support claim cannot be discharged in bankruptcy and framed the issue as: "Does ... the release of Debtor from liability on a claim [in bankruptcy], release the Debtor from a nondischargeable debt for child support?" Id. at 13.
The Bankruptcy Court ruled in favor of Mr. Davis as follows:
The State appealed the Bankruptcy Court's injunction order. Three months after the parties fully briefed this Court as to the merits of the bankruptcy appeal, the State filed its Notice of Supplemental Authority (Doc. # 19), containing the Eleventh Circuit's decision in In re Diaz, 647 F.3d 1073 (11th Cir.2011), which is dispositive of the issue presented on appeal.
Upon entry of a final order by the bankruptcy court, a party may appeal to the district court pursuant to 28 U.S.C. § 158(a). The United States District Court functions as an appellate court in reviewing decisions of the United States Bankruptcy Court. In re Colortex Indus., Inc., 19 F.3d 1371, 1374 (11th Cir.1994). This Court reviews de novo the legal conclusions of the bankruptcy court. In re JLJ, Inc., 988 F.2d 1112, 1116 (11th Cir. 1993).
The standard of review employed by this Court in reviewing the bankruptcy court's findings of fact is the clearly erroneous standard of review described in Federal Rule of Bankruptcy Procedure 8013: "Findings of fact, whether based on oral or documentary evidence, shall not be set aside unless clearly erroneous, and due regard shall be given to the opportunity of the bankruptcy court to judge the credibility of the witnesses." See In re Thomas, 883 F.2d 991, 994 (11th Cir.1989). A finding of fact is clearly erroneous when, "although there is evidence to support it, the reviewing court on the entire record is left with the definite and firm conviction that a mistake has been committed." Crawford v. Western Elec. Co., Inc., 745 F.2d 1373, 1378 (11th Cir.1984) (citing United States v. United States Gypsum Co., 333 U.S. 364, 68 S.Ct. 525, 92 L.Ed. 746 (1948)).
The issue presented on appeal is purely a legal one:
(Doc. # 7 at 2).
"[D]omestic support obligation[s]" are nondischargeable in bankruptcy. 11 U.S.C. § 523(a)(5). The Court underscored the nondischargeability of domestic support obligations, including child support obligations, in United Student Aid Funds, Inc. v. Espinosa, ___ U.S. ___, 130 S.Ct. 1367, 1379 at n. 10, 176 L.Ed.2d 158 (2010), where it noted that such obligations "are not dischargeable under any circumstances." (Emphasis in original).
The parties agree that domestic support obligations are nondischargeable in the context of a Chapter 11 bankruptcy case. However, in this case, the Bankruptcy Court determined that Mr. Davis's domestic support obligations were zero, disallowed the State's $180,000.00 Claim against the bankruptcy estate for child support payments (post-plan confirmation), and then barred the State from pursuing
The Court determines that it is necessary to reverse the Bankruptcy Court's injunction against the State based upon the recent Eleventh Circuit case of In re Diaz, 647 F.3d 1073 (11th Cir.2011), which is on point and binding. In the Diaz opinion (which had not been issued when the Bankruptcy Court made its legal ruling now appealed), the Eleventh Circuit curtailed the bankruptcy court's powers to enjoin or sanction domestic support obligation creditors in the context of child support collection actions in State court after the entry of a discharge order in bankruptcy court.
Specifically, the Diaz court reversed a bankruptcy court's imposition of sanctions against the State and reversed a district court's order affirming the bankruptcy court, holding: "[W]e easily conclude that the bankruptcy court's discharge order did not discharge Diaz's child support obligation. Therefore, the Florida [Department of Revenue] ... could not have violated the discharge injunction by pursuing Diaz for child support after discharge." 647 F.3d at 1090.
Although Diaz was a Chapter 13 case and the present case is a Chapter 11 case, the Court sees no reason to limit the Eleventh Circuit's holding to Chapter 13 cases. The Diaz court explained that "disallowance of a claim and nondischargeability are separate issues. Although a creditor whose claim is disallowed may not collect from the bankruptcy estate, disallowance of a claim does not necessarily discharge the underlying debt and eliminate the debtor's personal liability outside of bankruptcy." Id. at 1090 (internal quotation marks and citations omitted).
In the present case, the Bankruptcy Court disallowed the State's Claim and then enjoined the State from attempting to collect the child-support monies from Mr. Davis in the State court. Under Diaz, the Bankruptcy Court's injunction order was entered in error. As stated in Diaz, Congress made child-support obligations nondischargeable because "payment of child support is more important than a debtor's financial `fresh start.'" Id. at 1092. The Diaz court also warned, "If bankruptcy courts could fix a debtor's personal liability for child-support through rulings on a claim objection or confirmation of a [bankruptcy] plan, this would often result in de facto modification of state child-support orders. Federal courts have no business becoming embroiled in state domestic relations to such a degree." Id. at 1092, n. 16 (citing Carver v. Carver, 954 F.2d 1573, 1579 (11th Cir.1992) ("Nor was it the intent of the new Bankruptcy Code to convert the bankruptcy courts into family or domestic relations courts—courts that would, in turn, will-nilly, modify divorce decrees of state courts insofar as these courts had previously fixed the amount of alimony and child-support obligations of debtors.") (internal citations omitted)).
As explained in In re Newman, 402 B.R. 908, 912 (Bankr.M.D.Fla.2009), "failure to object to confirmation of the [d]ebtor's Chapter 11 Plan does not affect [a claimant's] ability to collect [a] nondischargeable... liabilit[y] after confirmation of the Plan." Although Newman is a tax case, the Court determines that its holding concerning nondischargeable tax liabilities is persuasive in the context of
Under Diaz, this Court determines that "res judicata and collateral estoppel do not preclude the Florida DOR ... from arguing the extent of [the debtor's] personal liability for child support post-bankruptcy." Id. at 1092.
Accordingly, it is now
(1) The Bankruptcy Court's Order dated August 23, 2010, barring the State and Maryanne Davis from enforcing a child support claim against Michael Davis in
(2) The Clerk is directed to transmit a copy of this Order to the Bankruptcy Court and, thereafter,
