DANIEL P. COLLINS, Bankruptcy Judge.
Before this Court are a Motion and Counter-Motion for Summary Judgment to determine whether a state court judgment for attorneys' fees is a domestic support obligation ("DSO"). Kimberly Lauren Hurst ("Ms. Hurst") holds a judgment ("Judgment") against Aaron Joseph Hurst ("Debtor") arising from a divorce case #FC2014-009478 ("Divorce Case") in the Superior Court of Arizona, Maricopa County ("State Court"). Ms. Hurst contends the Judgment is a DSO. Debtor contends the Judgment should not be treated as a DSO and is therefore dischargeable.
This Court now finds that, under the facts of this case, the Judgment is a DSO within the meaning of 11 U.S.C. § 101(14A).
1. A trial was held in the Divorce Case on September 22, 2016. The State Court heard testimony regarding a Petition Re: Contempt for Non-Payment of Child Support and Attorney Fees ("Petition for Contempt"). Ms. Hurst requested attorneys' fees against Debtor during those proceedings. Attorneys' fees were granted, in favor of Ms. Hurst, as reflected by the State Court's minute entry.
2. The minute entry required a China Doll affidavit
3. On November 22, 2016, the State Court entered the Judgment
4. On August 11, 2017, the State Court dissolved the parties' marriage.
5. On April 12, 2018 ("Petition Date"), Debtor filed the instant voluntary Chapter 13 bankruptcy.
6. On April 19, 2018, Debtor filed his chapter 13 plan ("Plan").
7. On July 23, 2018, Ms. Hurst initiated this Adversary Proceeding by filing her complaint ("Complaint")
8. On December 6, 2018, the Debtor filed a Motion for Summary Judgment ("MSJ")
9. On December 28, 2018, Ms. Hurst filed a Response to the MSJ, a Counter-Motion for Summary Judgment ("CMSJ"), and a Statement of Facts ("PSOF").
10. On January 11, 2018, Debtor filed his Reply to Ms. Hurst's Response to MSJ ("DMSJ Response") and his Response to CMSJ ("CMSJ Response").
11. On January 25, 2018, Ms. Hurst filed her Reply to CMSJ Response.
12. This Court heard oral arguments on the MSJ and CMSJ on March 18, 2018. The Court and parties agreed some additional information was necessary for the Court to make a final determination. The record was supplemented with additional information.
13. The Court heard continued oral arguments on April 22, 2018, and then took this matter under advisement.
Pursuant to 28 U.S.C. § 157(b)(2)(I), this Court has jurisdiction over the dischargeability issues presented by the parties.
Whether the Judgment is a DSO under § 101(14A) and, therefore, nondischargeable under § 523(a)(5).
"One of the `main purpose[s]' of the federal bankruptcy system is `to aid the unfortunate debtor by giving him a fresh start in life, free from debts, except of a certain character.'" Lamar, Archer & Cofrin, LLP v. Appling, 138 S.Ct. 1752, 1758 (2018) (quoting Stellwagen v. Clum, 245 U.S. 605, 617 (1918)). "To that end, the Bankruptcy Code contains broad provisions for the discharge of debts, subject to exceptions." Id. One such exception is "an overriding public policy favoring the enforcement of familial obligations." Shaver v. Shaver, 736 F.2d 1314, 1316 (9th Cir. 1984).
Section 523(a)(5) does not discharge an individual debtor from any debt "for a domestic support obligation[.]" Section 101(14A) defines the term "domestic support obligation," in relevant part, as:
"When determining whether a debt is within the § 523(a)(5) exception to discharge, a court considers whether the debt is `actually in the nature of . . . support.'" In re Chang, 163 F.3d 1138, 1140 (9th Cir. 1998) (quoting Shaver v. Shaver, 736 F.2d 1314, 1316 (9th Cir. 1984)). "This question is a factual determination made by the bankruptcy court as a matter of federal bankruptcy law." Id. "In the absence of a specific conflict with federal law, we must look to state law to delineate the parties' state-created support obligations." In re Catlow, 633 F.2d 960, 962 (9th Cir. 1981).
Several factors guide courts in determining whether an award is actually in the nature of support. Those factors include: the recipient spouse's need for support, presence of minor children, an imbalance in the relative income of the parties, and the intent of the state court. See In re Gionis, 170 B.R. 675, 682 (B.A.P. 9th Cir. 1994), aff'd, 92 F.3d 1192 (9th Cir. 1996). Furthermore, "[a] relevant factor for the bankruptcy court to consider when making this determination is how the particular state law characterizes the debt." In re Chang, 163 F.3d at 1140 (citing In re Catlow, 663 F.2d 960, 962-63 (9th Cir. 1981).
"The Arizona superior court has authority under A.R.S. § 25-324 to award attorney's fees and costs in custody disputes[.]" In re Jarski, 301 B.R. 342, 346 (Bankr. D. Ariz. 2003). Here, the Judgment is an award of attorney's fees and costs pursuant to A.R.S. § 25-324, which states:
In summary, under A.R.S. § 25-324(A) a court must consider two elements when determining whether to award attorneys' fees: (1) the financial resources of both parties and (2) the reasonableness of the positions each party has taken in the proceedings. Under A.R.S. § 25-324(B), fee awards must be made under certain circumstances but without regard to a parties' financial resources.
A party objecting to the bankruptcy discharge "bears the burden of proving by a preponderance of the evidence that [the debtor's] discharge should be denied." In re Retz, 606 F.3d 1189, 1196 (9th Cir. 2010) (quoting Khalil v. Developers Sur. & Indem. Co. (In re Khalil), 379 B.R. 163, 172 (B.A.P. 9th Cir. 2007)). However, "[t]he Ninth Circuit has recognized that a presumption exists that fees awarded under [A.R.S. § 25-324(A)] in matters involving child custody or child support are considered in the nature of child support unless the record reflects otherwise." In re Bradshaw, Adversary Case No. 06-00245, 2007 WL 2460619, at *1 (Bankr. D. Ariz. Aug. 24, 2007) (citing See In re Chang, 163 F.3d at 1141; In re Catlow, 663 F.2d 960; In re Jarski, 301 B.R. at 347). "In order for an award of attorneys' fees to be presumed to be a DSO, the award must have been entered in a matter involving child custody or support, and the award must have been entered pursuant to A.R.S. § 25-324(A)." Matter of Sodergren, No. 2:16-BK-12689-SHG, 2018 WL 4304582, at *6 (D. Ariz. Sep. 10, 2018).
The first prong of the § 25-324(A) test is met here. The parties agree that the Judgment was entered in a domestic relations proceeding involving child support
At trial in the Divorce Case, the State Court heard extensive testimony regarding Ms. Hurst's Petition for Contempt.
The State Court did not explicitly specify in the Judgment under which subsection of A.R.S. § 25-324 it awarded Ms. Hurst the attorneys' fees and costs at issue. However, during the Divorce Case trial, the State Court found and awarded attorneys' fees and costs for Ms. Hurst. The State Court specifically stated:
The State Court specifically mentioned both elements of A.R.S. § 25-324(A) when it granted Ms. Hurst attorneys; fees in the State Court action. Thereafter, the State Court requested a China Doll affidavit and responses stating, "I'll obviously take into consideration the — you know, the finances of the parties and all."
Ms. Hurst's attorney's China Doll affidavit was used by the State Court to determine the reasonableness of fees charged. Ms. Hurst had the burden of presenting an affidavit indicating "the type of legal services provided, the date the service was provided, the attorney providing the service (if more than one attorney was involved in the appeal), and the time spent in providing the service." Weinstein v. Weinstein, 235 Ariz. 40, 52, 326 P.3d 307, 319 (Ct. App. 2014) (citing Schweiger v. China Doll Rest. Inc., 138 Ariz. 183, 188, 673 P.2d 927, 932 (App. 1983).
The Debtor urged the Court to look at the China Doll affidavit and briefs filed by Ms. Hurst, after the State Court awarded attorney's fees at trial, to ascertain the basis for the attorneys' fee award. The Debtor argues Ms. Hurst's State Court fee application was devoid of references to financial need. Therefore, Debtor contends, the fee award must have been intended by the State Court as a sanction and Ms. Hurst has not met her burden of demonstrating that the fee award was based upon A.R.S. §25-324(A) alone. Debtor relies heavily on Sodergren for this proposition.
Sodergren involved a vague state court explanation for its fee award. 2018 WL 4304582 at *3. In Sodergren, a domestic dispute arose wherein attorney's fees were awarded in a matter involving child support. Id. at *1. The judgment "simply states that it is being entered pursuant to [the] application for fees and costs, and the response and reply thereto, and sets out the amount of the award." Id. at *3. Judge Gan placed significant emphasis on the application for fees and costs in determining the state court's intent. Id. at *4.
Unlike the vague state court judgment in Sodergren, the State Court in the Divorce Case issued the Judgment in an under advisement ruling explaining,
Ms. Hurst argues, and this Court agrees, that the State Court already determined Ms. Hurst's financial need during an earlier trial, considered it when reviewing the China Doll affidavit, and expressly referenced the financial disparity in the Judgment.
The Debtor further argues that the attorneys' fees at issue were not
Based on the above, the Court holds that the State Court Judgment was entered pursuant to A.R.S. § 25-324(A). Since the Judgment was also entered in a matter involving child custody and child support, the presumption is that the Judgment is a non-dischargeable DSO under § 523(a)(5). The burden of proof is then shifted to the Debtor to rebut the presumption. As was stated by the court in Jarski,
301 B.R. at 347.
Debtor failed to rebut the presumption and, therefore, failed to meet the burden that shifted to him. Although the Debtor contends the Judgment must have been purely a sanction against him, the facts do not support such a finding. In addition to imposing the Judgment, the State Court imposed specific misconduct sanctions against the Debtor. The State Court specifically found the Debtor in contempt for failure to comply with a valid award of attorneys' fees and child support in favor of Ms. Hurst.
Although Debtor argues that the State Court trial involved several issues including, but not limited to child support and therefore the presumption created in In re Catlow should not arise, the Court disagrees. Ms. Hurst needed to bring the Petition for Contempt because Debtor failed to comply with the State Court's May 29, 2015 Under Advisement Ruling.
Based on the foregoing, this Court determines the State Court's Judgment against the Debtor was a DSO under § 101(14A). As a DSO, the Judgment is non-dischargeable under § 523(a)(5). Ms. Hurst's counsel is directed to upload a form of judgment consistent with this Under Advisement Ruling.
