ROBERT D. MARTIN, Bankruptcy Judge.
On November 18, 2013, the Chapter 13 plan of Ronald Symdon (Debtor) was confirmed. On January 27, 2014, Balisle & Roberson, S.C. (Balisle) filed a Claim for $70,000. It asserted priority under § 507(a)(1)(A) or (a)(1)(B). I denied that priority, but on appeal the District Court vacated my Order and remanded for further proceedings. Specifically, this court was directed to determine whether Balisle has standing to assert priority for this claim, and a final hearing on that issue has been held.
Debtor and his wife Peggy divorced in 2010. As part of the divorce decree, Debtor was ordered to pay $70,000 in attorneys' fees that Peggy incurred during the divorce proceedings. In re Symdon, Case No. 09-FA-0331 at 10 (Wis. Cir. Ct. Dane County Mar. 17, 2004). The List of Exhibits filed by both parties contain the following references to the award of attorney's fees:
Id. at 12.
Id. at 13.
Id. at 39.
Id. at 31.
Additionally, on September 22, 2011, the Wisconsin Circuit Court, Family County Branch issued a judgement which read as follows:
Id. at 81. Debtor made no payment on that obligation.
On January 7, 2012, Debtor commenced a bankruptcy under Chapter 7. His schedules listed an obligation to pay Balisle as one of a number of general unsecured debts. Balisle brought an adversary proceeding, seeking a determination of the nondischargeability of its attorneys' fees award. Without opposition from Debtor, the Bankruptcy Court issued an order finding Balisle's debt was nondischargeable pursuant to both 11 U.S.C. § 523(a)(5) and (a)(15).
On September 24, 2013, Debtor again filed for bankruptcy, this time under Chapter 13, and listed Balisle as an unsecured, non-priority creditor. Balisle sought priority under § 507(a)(1)(A) on the basis that its claim represented a "domestic support obligation." Debtor objected to Balisle's claim to priority. I sustained that objection. The District Court vacated my decision, and held that Balisle was entitled to priority status, if Balisle had standing, "through an assignment or some other cognizable legal mechanism, to pursue Peggy Symdon's award of $70,000 in attorney's fees as originally ordered in her divorce decree." Balisle & Roberson, S.C. v. Symdon, 2016 WL 2731687 at *5 (W.D. Wis. 2016).
Wisconsin Statute § 767.241(1), (3) governs the award of attorneys' fees in divorce proceedings:
Wis. Stat. § 767.241 (2015). The Family Court ordered Debtor to pay $70,000 in attorney fees, but did not order any amount "be paid directly to the attorney" as is permitted in (3) above.
Balisle can collect attorneys' fees from its client, Peggy, because there is a state court judgment entered in favor of Balisle against Peggy. And, Peggy can collect up to $70,000 calculated as attorney fees from Debtor, because the Family Court so ordered. But, there is no award of fees or judgment in favor of Balisle against Debtor. In Mallin v. Mallin, the court noted that alimony and attorneys' fees were separate obligations:
Mallin v. Mallin, 657 N.E.2d 856, 859 (Ohio Ct. App. 1995); accord Berryman v. Sutphin, 2010 WL 1404422 at *3 (Mich. Ct. App. 2010).
It would be possible to manipulate the award in such a way that an attorney has legal recourse against a debtor. This relationship could be achieved through a judgment against both parties or an assignment of the obligation. See Matter of Joseph, 16 F.3d 86 (5th Cir. 1994) (attorney obtained judgment against both husband and wife); In re LeRoy, 251 B.R. 490 (Bankr. N.D. Ill. 2000) (wife assigned right to receive payment directly to law firm). Neither step was taken in the present case. No evidence of any form of assignment or transfer was presented at the final hearing.
An interpretation of an award of attorneys' fees as being, by default, enforceable by the attorney seems to be based on a fundamental misunderstanding of Wisconsin marital law. In Clark v. Burke, the Wisconsin Supreme Court stated:
Clark v. Burke, 27 N.W. 22, 24 (Wis. 1886) (citations omitted). In O'Connor v. O'Connor:
O'Connor v. O'Connor, 180 N.W.2d 735, 737 (Wis. 1970). Until 1977, Wisconsin courts were prohibited from awarding attorneys' fees directly to an attorney, unless the divorce proceedings were dismissed. See WIS. STAT. § 247.23 (1975) and WIS. STAT. § 247.262 (1977); see also WIS. STAT. § 247.23, Judicial Council Committee's Note, 1976 ("The court cannot enter a judgment in favor of the attorneys directly."). And O'Connor provides an ethical rationale for this approach:
180 N.W.2d at 738.
The historical rule in Wisconsin was that an award of attorney fees to one party in a divorce proceeding must be made payable to the spouse, not to the attorney. The Divorce Reform Act of 1977 amended the statutory provision to state that: "The court may order that the amount be paid directly to the attorney." Wis. Stat. § 767.241(3). Given the legislative history, the absence of any case law to the contrary, and the nature of divorce proceedings generally, it seems that a divorce decree awarding contribution to attorney fees, in the absence of explicit language to the contrary, is payable to the spouse, not the attorney.
So, if Balisle has standing to assert priority as a "creditor" of Debtor, it is not by virtue of any direct award or judgment for none was made against Debtor in favor of Balisle. Neither is it by virtue of any assignment or transfer, for none was proved to have been made. And an attorney does not automatically have standing on any other theory in a bankruptcy to contest treatment of an award made to his client.
11 U.S.C. § 101(10)(A) states:
11 U.S.C. § 101 (2010). U.S.C. § 101(5) defines claim:
Id.
Discussing a divorce lawyer's standing, the Sixth Circuit stated:
In re Perlin, 30 F.3d 39, 41 (6
One court has claimed that there is a consensus that an attorney does not have standing to contest classification of an award of attorney fees when that award was made to the ex-spouse. See In re Smith, 419 B.R. 622, 629 (Bankr. E.D. Va. 2008) ("[D]ecisions have considered whether an attorney who is awarded fees as part of a larger judgment made solely in favor of his client in a divorce proceeding may subsequently initiate an action against the adverse spouse to challenge the dischargeability of the awarded fees. These decisions largely have decided such an attorney-claimant is without standing to bring a claim.").
Thus, there is persuasive case law holding that Balisle does not have standing to assert its claim. As in Arizona, the Wisconsin statute provides a judge with the option to award the fees directly to the attorney. As in Perlin, there is nothing in the divorce decree that directs Debtor to make payment to the attorney directly. My prior decision states, however, that: "In this case, the record suggests that the attorneys' fees were owed directly to Balisle." In re Symdon, 2014 WL 4966680 at *4 (Bankr. W.D. Wis. 2014). This statement appears to be erroneous and presumably relies on the Proof of Claim or Debtor's Schedule F; nothing in the divorce documents directs payment to Balisle. No subsequent court ruling or separate writing does so either.
Furthermore, Balisle cannot establish standing to contest classification of the award by claiming an inchoate right to garnish Debtor. Wisconsin does not permit garnishment of domestic support obligations.
Wisconsin Statute § 812.01(1) states:
WIS. STAT. § 812.01 (2015). Wisconsin Statute § 812.18(1) states:
WIS. STAT. § 812.18 (2015). Wisconsin Statute § 815.18(c) states:
WIS. STAT. § 815.18 (2015).
The District Court held that the award of attorneys' fees was a domestic support obligation. If that fee award was reasonably necessary for the support of Peggy, it is exempt from execution and not a proper subject of garnishment. See Balisle & Roberson, S.C. v. Symdon, 2016 WL 2731687 at *5 (W.D. Wis. 2016). Additionally, this Court has previously recognized the uniqueness of domestic support obligations in Wisconsin:
In re Edl, 207 B.R. 611, 617 (Bankr. W.D. Wis. 1997). Edl distinguished between alimony and property divisions, but the award of attorneys' fees has already been held to constitute alimony in this case.
Edl also considered a case in which the potential garnishor was the spouse, not a third-party to the divorce proceeding. To hold that this distinction changes the outcome would be to hold that a third-party has more power to enforce a divorce decree than the spouse owed payment; this result is simply illogical and would create a dangerous ability to avoid standard divorce enforcement procedures. It is not a garnishment, but a motion for contempt, that is utilized to enforce payment:
O'Connor v. O'Connor, 180 N.W.2d 738; see also Courtney v. Courtney, 29 N.W.2d 759, 762 (Wis. 1947); see also Audubon v. Shufeldt, 181 U.S. 575, 578 (1901) ("In other respects, alimony cannot ordinarily be enforced by action at law, but only by application to the court which granted it, and subject to the discretion of that court.").
Here, Balisle does not have the right to enforce payment of the $70,000 attorney fee award made in the divorce decree. First, the payment, or some part of it, is likely exempt from execution. Second, garnishment of alimony payments is not allowed under Wisconsin law. Therefore, Balisle is not a "hypothetical garnishor," and cannot have standing under that theory.
All that appears to remain to be considered in this proceeding is the possibility that Debtor is estopped from contesting the standing asserted by Balisle. He is not.
The Supreme Court has explained the test for judicial estoppel most recently in Zedner. To wit:
As this Court has explained:
Zedner v. United States, 547 U.S. 489, 504 (2006).
While the Seventh Circuit does not appear to have endorsed a specific application of the Zedner factors, it does appear to impose a requirement that the previous act or omission of the party, which is the basis of an argument for judicial estoppel, have been intentional. Judge Easterbrook recently stated:
Metrou v. M.A. Mortenson Co., 781 F.3d 357 (7th Cir. 2015); see also Thompson v. Elkhart Lake's Road America, Inc., 2016 WL 1558414 at *5 (E.D. Wis. 2016) ("The Court finds that judicial estoppel is not warranted in this case to bar the plaintiffs' claims against Road America because there is insufficient evidence in the record as to any intentional deceit or concealment by the plaintiffs.").
As an equitable principle, judicial estoppel is employed to prevent a party from benefitting by the assumption of incompatible positions. Here, Debtor obtained no benefit at all from its earlier position that the debt was owed to Balisle. Since courts do not apply judicial estoppel in cases where debtors inadvertently benefitted from their original position, it is inappropriate to invoke judicial estoppel in a case where a debtor inadvertently harmed himself from its earlier position.
Upon the foregoing I must conclude that Balisle lacks standing to assert priority in this case for the claim it asserts against Debtor. It may be so ordered.
