DAVID M. WARREN, Bankruptcy Judge.
This matter comes before the court upon the Motion for Summary Judgment and Incorporated Memorandum of Law ("Plaintiff's Summary Judgment Motion") filed by Karen Thomas ("Plaintiff") on February 1, 2019 and the Motion for Summary Judgment and Incorporated Memorandum of Law ("Defendant's Summary Judgment Motion") filed by Lee Roy Thomas IV ("Defendant") on February 22, 2019. The court conducted a hearing on April 15, 2019 in Raleigh, North Carolina. Benjamin R. Eisner, Esq. appeared for the Plaintiff, and Jonathan E. Friesen, Esq. appeared for the Defendant. After consideration of the undisputed facts, applicable law, and arguments of counsel, the court denies the Plaintiff's Summary Judgment Motion and grants the Defendant's Summary Judgment Motion.
The Defendant filed a voluntary petition for relief under Chapter 7 of the United States Bankruptcy Code
On August 21, 2018, the Plaintiff initiated this adversary proceeding by filing a Complaint seeking the determination that certain alleged debts owed by the Defendant to the Plaintiff are excepted from discharge pursuant to § 523(a)(15). On October 22, 2018, the Defendant filed an Answer denying liability to the Plaintiff for any debts nondischargeable under § 523(a)(15). Both parties thereafter filed their respective motions for summary judgment, each seeking judgment in their favor pursuant to Rule 56 of the Federal Rules of Bankruptcy Procedure.
Rule 56 provides that "[t]he court shall grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a). Summary judgment is appropriate "upon proper showings of the lack of genuine, triable issue of material fact . . . [and] is properly regarded not as a disfavored procedural shortcut, but rather as an integral part of the Federal Rules as a whole, which are designed `to secure the just, speedy and inexpensive determination of every action.'" Celotex Corp. v. Catrett, 477 U.S. 317, 327 (1986) (quoting Fed. R. Civ. P. 1). "When faced with cross-motions for summary judgment, the court must review each motion separately on its on merits `to determine whether either of the parties deserves judgment as a matter of law.'" Rossignol v. Voorhaar, 316 F.3d 516, 523 (4th Cir. 2003) (quoting Philip Morris Inc. v. Harshbarger, 122 F.3d 58, 62 n. 4 (1st Cir. 1997)). When no underlying issue of material fact exists, the court need not consider each motion separately. Harshbarger, 122 F.3d at 62 n. 4.
The undisputed facts presented in this matter are quite simple. The Plaintiff and the Defendant were previously married but are now divorced. In 2016, the Defendant initiated in the District Court Division of Craven County, North Carolina ("State Court") an action against the Plaintiff for dissolution of marriage and distribution of marital assets and liabilities ("State Court Action"). On April 12, 2017, the parties participated in a mediated settlement conference and entered into an agreement ("Settlement Agreement") for custody of their minor child; payment of child support; and division of assets, liabilities, and expenses. The Settlement Agreement provides, inter alia, as follows:
The Settlement Agreement, signed by both parties and their domestic counsel, was incorporated into a Memorandum of Judgment/Order ("State Court Memorandum") entered by the State Court on April 18, 2017. The State Court Memorandum was prepared from a civil form adopted by the North Carolina Administrative Office of the Courts which in blank provides as follows:
AOC-CV-220, New 4/97.
On the State Court Memorandum, "See attached Ex. A" is handwritten on the lines included within paragraph 1, and the Settlement Agreement is attached as "Exhibit A." Paragraph 2 is left blank as to a date by which a formal judgment shall be prepared and submitted,
On March 1, 2018, the Plaintiff filed in the State Court Action a Motion for Show Cause, alleging that the Defendant had failed to comply with the State Court Memorandum by, inter alia, failing and refusing to pay the following marital debts: the debt owed to Branch Banking & Trust ("BB&T") secured by the marital residence; the debt owed to BB&T on a credit card account; and the debt owed to the Internal Revenue Service. On March 2, 2018 the State Court entered a Show Cause Order directing the Defendant to appear before the State Court on March 19, 2018 and show cause, if any, why he should not be held in contempt for failure to comply with the State Court Memorandum. This hearing was continued until May 16, 2018 and then stayed by the Defendant's bankruptcy petition filed prior to the hearing.
The Bankruptcy Code provides that "[e]xcept as provided in section 523 . . . [a Chapter 7 discharge] discharges the debtor from all debts that arose before the date of the order for relief." 11 U.S.C. § 727(b). Section 523 enumerates the types of debts that are excepted from a discharge granted to an individual debtor. Providing a fresh start for honest debtors is one of the primary purposes of the Bankruptcy Code. In re Donald, 343 B.R. 524, 539 (Bankr. E.D.N.C. 2006). The court must interpret narrowly discharge exceptions to protect a debtor's fresh start. Foley & Lardner v. Biondo (In re Biondo), 180 F.3d 126, 130 (4th Cir. 1999) (citing Century 21 Balfour Real Estate v. Menna (In re Menna), 16 F.3d 7, 9 (1st Cir. 1994)).
Sections 523(a)(5) and (15) provide protection for certain obligations owing to a spouse, former spouse, or child of a debtor in bankruptcy. Section 523(a)(5) excepts from discharge a debt for a "domestic support obligation," which is defined as a debt in the nature of alimony, maintenance or support. In re Edinger, 518 B.R. 859, 864 (Bankr. E.D.N.C. 2014) (interpreting 11 U.S.C. § 101(14A) (other citations omitted)). Section 523(a)(15) further excepts a debt—
11 U.S.C. § 523(a)(15).
Section 523(a)(15) was added to the Bankruptcy Code by the Bankruptcy Reform Act of 1994 "in an attempt to lessen the chance that a divorce obligee's claims might slip through § 523(a)(5)'s cracks and be discharged unjustly." Dressler v. Dressler (In re Dressler), 194 B.R. 290, 300 (Bankr. D.R.I. 1996). The exception—
4 Collier on Bankruptcy ¶ 523.23 (16th ed. rev. 2019) (quoting Matter of Crosswhite, 148 F.3d 879, 887 (7th Cir. 1998)). "By enacting § 523(a)(15), Congress manifested its intent that `a debtor should not use the protection of a bankruptcy filing in order to avoid legitimate marital and child support obligations.'" Sherman v. Proyect (In re Proyect), 503 B.R. 765, 773 (Bankr. N.D. Ga. 2013) (quoting H.R. Rep. No. 103-835, at 54 (Oct. 4, 1994), reprinted in 1994 U.S.C.C.A.N. 3340, 3363). The scope of § 523(a)(15) was narrowed by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, which added the requirement that the debt be owed to a spouse, former spouse, or child of the debtor.
This court recently analyzed § 523(a)(15) and noted that "[t]he phrase `incurred by the debtor in the course of a divorce or separation' . . . has been interpreted to require the incurrence of a new debt in the course of a divorce or separation that was not in existence before the divorce." Baum v. Baum (In re Baum), No. 14-00044-5-DMW, 2016 WL 5360709, at *12 (Bankr. E.D.N.C. Sept. 23, 2016), aff'd No. 5:16-cv-00840-FL (E.D.N.C. Sept. 29, 2017) (citations omitted) (emphasis in original). In Baum, the court recognized that a new debt obligation to a spouse or former spouse is created generally by a hold harmless or indemnification provision contained within a domestic order or agreement:
Id. at *13 (quoting Burton v. Burton (In re Burton), 242 B.R. 674, 678 (Bankr. W.D. Mo. 1999)). See also Belcher v. Owens (In re Owens), 191 B.R. 669, 674-75 (Bankr. E.D. Ky. 1996) (holding that hold harmless language included within a property settlement agreement created a new obligation as contemplated by § 523(a)(15)).
The Settlement Agreement undisputedly does not contain an indemnification or hold harmless clause that applies to the marital debts agreed to be paid by the Defendant. The Defendant contends, therefore, that he has incurred no debt obligation owed to the Plaintiff. Relying on the case of Wodark v. Wodark (In re Wodark), 425 B.R. 834 (10th Cir. B.A.P. 2010), the Plaintiff counters that her right to indemnification is inherent in the Defendant's agreement to pay joint obligations.
Wodark presents similar facts in that the state court entered an order incorporating the terms of the parties' separation agreement, which "was made on a check-the-box and fill-in-the-blanks form promulgated by the Colorado state courts." Id. at 836. The section of this agreement which assigned responsibility for payment of identified marital debts contained the following form language: "The party responsible for the debts 2610 will 2610 will not (check one) indemnify the other party and hold him/her harmless for those debts." Id. Neither box was checked. The Chapter 7 debtor's ex-husband sought a determination that the debtor's obligation to pay a joint equity line of credit as set forth in the separation agreement was a nondischargeable debt to him under § 523(a)(15). The debtor (Glennette) defended that she owed the debt to the creditor (Chase), not her ex-husband (Thaddeus), and the debt to the creditor had been discharged. The United States Bankruptcy Court for the District of Colorado granted summary judgment in favor of the ex-husband, concluding that he was the intended beneficiary of the debtor's payments to the creditor, and the obligation was fully enforceable by a Colorado domestic court. The United States Bankruptcy Appellate Panel for the Tenth Circuit affirmed, and the Honorable Robert E. Nugent explained as follows:
Id. at 839.
Judge Nugent's analysis is well-reasoned, but the court disagrees that a party to a domestic agreement should be given the benefit of indemnification when the agreement is silent on that issue. The obligation burdening one party and benefiting another will not be assumed without a clear meeting of the minds and evidence of intent. Parties who settle a dispute, especially in contentious domestic matters, must be very clear in the documentation of the agreement. The lack of that recital in the written resolution between the parties is where this court diverts from Wodark. In Wodark, it is not clear whether the parties were represented by counsel in their negotiations, but the option for indemnification was presented to them very clearly on the form document, and they declined to make the election.
In this case, the parties were represented by counsel and reached the Settlement Agreement as part of a mediation. If either party desired a right to indemnification related to the marital debts, then that obligation could have and should have been included within the Settlement Agreement. Too often this court sees poorly drafted orders and settlement agreements that do not consider effects of the Bankruptcy Code upon the terms in these documents. Absent a right of indemnification in favor of the Plaintiff, the court will not speculate that the Defendant's agreement to pay certain marital debts was undertaken to provide support to the Plaintiff, and the terms of the Settlement Agreement suggest that the parties were simply seeking an equitable division of their debt. For instance, the Defendant agreed to pay all debt related to the marital residence, but the Defendant also obtained the benefit of continuing to live in this residence. The court would be more persuaded that the parties intended the division of marital debt to represent a means of support if the Plaintiff stayed in the marital residence while the Defendant agreed to pay the associated debt. Additionally, the Plaintiff also assumed responsibility for paying debts by agreeing to pay the State Employees Credit Union. This assumption of debt liability is not consistent with the Plaintiff's claim for support.
The court finds further support under North Carolina equitable distribution law that a right of indemnification is not automatic. N.C. Gen. Stat. § 50-20(c)(1)
The State Court Memorandum states that it is enforceable by the State Court's contempt powers should one of the parties not comply with the incorporated Settlement Agreement.
Within the State Court Action, the Plaintiff and the Defendant negotiated the Settlement Agreement and were assisted by counsel and a mediator. The Settlement Agreement became an order of the State Court by its incorporation into the State Court Memorandum. The Defendant's agreement to pay certain marital debts under the Settlement Agreement does not equate to automatic support to the Plaintiff. Whether purposefully or inadvertently, the Settlement Agreement contains no indemnification or hold harmless provision relating to the division of marital debt between the parties. The right to indemnification is discretionary within North Carolina domestic orders, and absent an indemnification requirement, the State Court cannot order indemnification through its contempt powers. The Settlement Agreement does not create a new debt owed from the Defendant to the Plaintiff that can be excepted from his discharge pursuant to § 523(a)(15); now therefore,
It is ORDERED, ADJUDGED, and DECREED as follows:
1. The Plaintiff's Summary Judgment Motion be, and hereby is, denied;
2. The Defendant's Summary Judgment motion be, and hereby is, granted; and
3. Pursuant to Rule 58(a) of the Federal Rules of Civil Procedure,
