Dale L. Somers, United States Chief Bankruptcy Judge.
Debtor/Defendant Lindy Graham filed a Chapter 13 bankruptcy petition, and therein listed as unsecured debt a "property settlement" to her former husband Roger Graham for $ 32,591.47. The "property settlement" was actually a judgment from state court requiring Debtor to reimburse her ex-husband for overpaid maintenance. Shortly thereafter, Plaintiff Roger Graham filed this adversary petition against Debtor, objecting to the discharge of that debt
The claim under § 523(a)(2) proceeded to trial.
Roger Graham is Debtor's ex-husband. Mr. Graham and Debtor were married in November 1998 and had three children together. Mr. Graham filed for divorce from Debtor in May 2012. During the pendency of their divorce, Mr. Graham was ordered to pay Debtor interim maintenance. The "interim" of that maintenance ended up being lengthier than most, as the parties' divorce, property settlement, and child custody issues were all contentious.
Over a year into this interim period, the parties began disputing a motion by Debtor to increase Mr. Graham's maintenance payments and child support. Soon thereafter, on November 26, 2013, Mr. Graham filed a motion to terminate that interim maintenance. At a December 12, 2013 hearing on the competing motions, Mr. Graham alleged that Debtor was living with her boyfriend and receiving financial support from him, and as a result, was cohabitating in a marriage-like relationship and should, therefore, not be receiving maintenance payments. At the hearing, Debtor unequivocally affirmed that she was in a romantic relationship with Daniel Schwent and that they were living together, but Debtor maintained that she and Mr. Schwent were acting as roommates by maintaining separate finances and expenses. The parties did not undertake discovery, and rested on the testimony given at the hearing. Within a few weeks, on December 31, 2013, the state court issued an order increasing Mr. Graham's interim maintenance to $ 1802 per month, setting Mr. Graham's child support payment to $ 235 per month, and requiring Mr. Graham to pay all direct expenses for the Graham children.
The parties' final decree of divorce was ultimately entered on April 17, 2014, nearly two years after the petition for divorce was filed, and a final Separation and Property Settlement Agreement was entered the same date. Per their final Agreement, Mr. Graham was ordered to pay maintenance
About two more years passed. This period is important more for what did not happen, than what did happen. Mr. Graham apparently kept an eye on Debtor's social media accounts and testified at length about what he saw there. Mr. Graham testified that he felt like Debtor was "living high on the hog" and "certainly did not appear to be struggling." Mr. Graham testified about viewing pictures on social media of a trip the Graham children, Debtor, and Mr. Schwent took together to St. Louis. Mr. Graham saw pictures on social media of wedding cakes, and rings, and he assumed that Debtor and Mr. Schwent were either engaged or planning to be engaged.
Then, in March 2016, the proverbial straw broke the camel's back. Debtor, Mr. Schwent, and the Graham children took a trip together to St. Thomas. Upon their return, one of the Graham children showed Mr. Graham a video of Debtor and Mr. Schwent becoming engaged while on the trip. Quickly thereafter, in April 2016, Mr. Graham's attorney sent Debtor a letter demanding to terminate maintenance from that point through October 2016, which was the end of the mandated term, because Mr. Graham believed Debtor was cohabitating in a marriage-like relationship. Both parties agree that Debtor responded, through her attorney, denying
Debtor testified at trial that she did not try to hide her engagement from Mr. Graham. Debtor knew her daughter was videotaping the engagement and assumed the children would say something to Mr. Graham. Debtor did not tell the children to hide the engagement. Debtor claims after she and Mr. Schwent got engaged, nothing changed in their living or financial arrangements.
Mr. Graham was not convinced. On May 31, 2016, Mr. Graham filed a motion in state court to terminate maintenance. Mr. Graham undertook extensive discovery on his motion: he subpoenaed Debtor's financial records and obtained copies of the leases Debtor and Mr. Schwent had signed. Debtor and Mr. Schwent's first lease had been a five-year lease with an option to purchase, and the next lease was a three-year lease. The parties dispute why Mr. Graham resorted to subpoenas for the information. Mr. Graham contends Debtor was refusing to cooperate in discovery. Debtor contends she gave her attorneys all the documents she had and that others were not readily available. Debtor contends she never refused to provide any documents to Mr. Graham. Mr. Graham's attorney who represented him in state court testified at trial, and she indicated that they subpoenaed the records because it was "easier" than filing a motion to compel.
A hearing was held on the motion to terminate maintenance on January 31, 2017. At that hearing, Mr. Graham's attorneys presented copies of checks written on Debtor's bank account. Debtor claimed to have signed all of the checks, even though it was clear based on the writing style that several of the checks had been signed by someone else, and at least a couple of the checks had been signed by Mr. Schwent. There was also an issue where Mr. Schwent had been added to the Graham children's school as a contact, and Mr. Schwent's desire to coach one of the Graham children's baseball teams. Throughout the state court trial, Debtor continued to maintain that she and Mr. Schwent had entirely separate finances, and were cohabitating, but were not in a marriage-like relationship.
On May 22, 2017, the state court granted Mr. Graham's motion to terminate maintenance. The state court granted the motion retroactively to January 5, 2015, concluding that Debtor had been cohabitating in a marriage-like relationship since at least that date. In its order, the state court specifically found that Debtor had been "less than truthful" in her testimony about the checks and had concealed cohabitation.
About a month later, on June 21, 2017, Debtor filed her Chapter 13 bankruptcy
An adversary proceeding to determine the dischargeability of a debt is a core proceeding under 28 U.S.C. § 157(b)(2)(I), over which this Court may exercise subject matter jurisdiction.
Subsection (a)(2)(A) excepts from discharge any debt "for money, property, [or] services . . . obtained by . . . false pretenses, a false representation, or actual fraud." Mr. Graham bears the burden of proof to establish each element of his claim under § 523(a)(2) by a preponderance of the evidence.
Mr. Graham has a difficult task from the beginning. The first two elements he must show are a false representation with the intent to deceive. A debtor's intent to deceive "`may be inferred from the totality of the circumstances.'"
Mr. Graham contends he overpaid the maintenance based on the "less than truthful" statements of Debtor—borrowing that phrase from state court, and that Debtor used obstructionist moves to hide the truth about her cohabitation from Mr. Graham. Mr. Graham alleges a planned-out course of action by Debtor to hide the truth about her relationship.
The Court finds this case to be difficult. The state court concluded Debtor began cohabitating in a marriage-like relationship at least by January 2015. It appears there was good reason for this conclusion: Debtor and Mr. Schwent were romantically involved and had been living together for a number of years. They shared a home and their lives, and the only thing "separating" them was that they purposefully kept their finances separate.
That said, for a debt to be nondischargeable under § 523(a)(2)(A), there has to be more. There has to be "false pretenses, a false representation, or actual fraud." There is just no evidence that Debtor was acting fraudulently. From all this Court has seen, Debtor was honest in her descriptions of her relationship. She never hid her relationship from Mr. Graham or their shared children.
Obviously, there were no false representations with an intent to deceive at the beginning of the parties' chronology: Debtor testified at the hearing on the first motion to terminate maintenance that she and Mr. Schwent were romantically involved and living together, and the state court blessed interim maintenance at that point. And then as noted above, during the next two years, there is no evidence of any communication between Debtor and Mr. Graham. Debtor then got engaged in March 2016, and in April 2016, Mr. Graham demanded that maintenance be terminated. Debtor's response to this letter demand was the first communication between the parties on the subject in years. At that point, instead of disclosing the true nature of her relationship (as found by the state court), Debtor denied again that she was cohabitating in a marriage-like relationship and insisted that her engagement had changed nothing between herself and Mr. Schwent. This may have been a situation of Debtor sticking her head in the sand and hiding from the truth, but the Court just has no evidence that it was fraudulent.
The only time Debtor was not honest was at the trial on the motion to terminate maintenance where she misled the state court about who signed three checks on her account. But that "less than truthful" testimony in state court about who signed three checks on Debtor's own account is insufficient to make a nondischargeability claim. Mr. Graham's reliance on Debtor's false pretenses or representations must be justifiable "from a subjective standpoint."
The situation herein is similar to that found by the bankruptcy court in the In re Taylor
The facts herein are strikingly similar. Here, Mr. Graham learned of Debtor's engagement in March 2016, filed the motion to terminate maintenance in April 2016, and then the state court awarded Mr. Graham a judgment for overpaid maintenance from January 2015 to October 2016. The facts are slightly different, in that in this case the state court reached back behind the time of the filing of the motion and awarded the judgment from before the motion was even filed. But that said, according to Taylor, there can be no reliance on a false representation once the ex-husband knows or believes that the ex-wife is not entitled to maintenance. Under Taylor, in this case, there can be no reliance at least as of April 2016, when the demand letter was sent by Mr. Graham to Debtor. And before April 2016, there was no communication at all between the parties, so where could the false representation come from? Mr. Graham finds himself in a true
Unfortunately for Mr. Graham, the Tenth Circuit has already discussed non-dischargeability claims based on state court judgments for the overpayment of maintenance, and carrying the burden of proof on such a claim is difficult. Mr. Graham has not met his burden of proof to show nondischargeability under § 523(a)(2)(A). Debtor was certainly interpreting "cohabitating in a marriage-like relationship" differently than was Mr. Graham, and the state court ultimately agreed with Mr. Graham's interpretation, but Mr. Graham has not shown that Debtor obtained the overpaid maintenance based on "false pretenses, a false representation, or actual fraud."
Mr. Graham has not met his burden to show the debt of $ 32,591.47 is nondischargeable under § 523(a)(2)(A). The Court enters judgment for Debtor, and concludes that the debt is dischargeable. As the Court has previously ruled, if Debtor seeks a discharge under § 1328(b) or converts her case to Chapter 7, Mr. Graham may renew his claim under § 523(a)(15).
