Claim for fees and expenses awarded in child custody case is nondischargeable and entitled to priority.
Cite as
1998 DJDAR 13101Published
Feb. 26, 1999Filing Date
Dec. 30, 1998Summary
The U.S.C.A. 9th held that a debtor's obligation, arising in a state court child custody case, to pay a share of her out-of-wedlock minor child's guardian ad litem fees and other court expenses was entitled to priority and was nondischargeable.
George Ting and Amy Chang were the out-of-wedlock parents of their child, Lindsay. During a bitter child-custody dispute in state court, a guardian ad litem was appointed to pursue the interests of Lindsay. Under California law, George and Amy were responsible for guardian ad litem fees and $100,000 in other expenses. These costs were apportioned equally between George and Amy. Since George had paid most of the expenses, the court ordered Amy to pay George for the amounts he paid in excess of his half share. Amy was required to pay her share of the guardian ad litem fees directly to the guardian ad litem. Instead, Chang filed a bankruptcy case under Chapter 13 along with a plan that provided for zero payment on both claims. George, and Aleta Beaupied, the guardian ad litem, objected to confirmation. They argued that both of the claims were nondischargeable under 11 U.S.C. Section 523(a)(5) and entitled to priority treatment under 11 U.S.C. Section 507(a)(7). Although the bankruptcy court agreed, the bankruptcy appellate panel reversed.
The U.S.C.A. 9th reversed. Section 523(a)(5)'s dischargeability exception for debts "owed to a spouse, former spouse, or child of the debtor, for alimony to, maintenance for, or support of such spouse or child," supports the public policy of enforcing family obligations. In applying Section 523(a)(5), a court must determine if the debt is "actually in the nature of . . . support." The court must also defer to state law to determine the characterization of the debt. Under California law, as held the bankruptcy court, the claims here created a support obligation. This determination was supported by case law. The mere identity of the "payee" as something other than a "spouse, former spouse, or child" did not require the affirmance of the bankruptcy appellate panel. "Fees paid to third parties on behalf of a child" can be as much for the support of that child as a payment directly to that child. Here, the obligations to George and Beaupied were in the nature of support for Lindsay. As such, the claims were not dischargeable. Also, the language of Section 507(a)(7), which grants priority for family obligation claims, is nearly identical to the language of Section 523(a)(5). As such, the application of Section 507(a)(7) is "coincidental" with the application of Section 523(a)(5). As such, the claims were also entitled to priority treatment under Chang's Chapter 13 plan.
—
Brian J. McCaffrey, San Francisco, California, for plaintiffappellant Beaupied.
Michael Willemsen, Palo Alto, California, for defendantappellee Chang.
OPINION TROTT, Circuit Judge:
George O. Ting and Aleta Beaupied appeal a judgment of the Bankruptcy Appellate Panel ("BAP"), reversing a bankruptcy court judgment in Ting and Beaupied's favor. The BAP concluded that Chang's debts to Ting and Beaupied arising from a child custody proceeding were not owed to a "spouse, former spouse, or child of the debtor, for alimony to, maintenance for, or support of such spouse or child, " 11 U.S.C. § 523(a)(5) (1994 & Supp. 1998), and that Chang's debts to Ting and Beaupied were therefore dischargeable and not entitled to priority. We have jurisdiction under 28 U.S.C. § 158(d) (1994), and we reverse and remand.
I Background Ting and Chang, respectively the out-of-wedlock father and mother of minor child Lindsay Chang, were embroiled in a bitter custody dispute over Lindsay, in which Beaupied was a court-appointed guardian ad litem to Lindsay. Chang accused Ting, falsely as it turned out, of sexually abusing Lindsay, requiring the expenditure of thousands of dollars in neutral experts' fees and health professionals' expenses to sort out the charges in court and for Lindsay's mental well-being. Under the California Family Code, Ting and Chang became responsible in the custody proceedings for these expenses and for Beaupied's guardian ad litem fees. At the conclusion of the custody proceedings, the court apportioned between Chang and Ting responsibility for nearly $100,000 in total expenses.
Because Ting had already paid much of the expense for the health professionals and neutral experts, the court order required Chang to reimburse Ting for the amounts paid in excess of his share. Chang was responsible to pay her share of the guardian ad litem fees directly to Beaupied.
Chang then filed for Chapter 13 bankruptcy and proposed a plan, which provided zero payment to unsecured creditors including Ting and Beaupied. Ting and Beaupied objected to the plan on the basis that the Chang's debts were nondischargeable under § 523(a)(5). Ting and Beaupied also argued that the debts were entitled to priority under 11 U.S.C. § 507(a)(7) (Supp. 1998).
II Standard of Review We review the bankruptcy court's decision independently, without deference to the BAP. In re Saylor, 108 F.3d 219, 220 (9th Cir. 1997). The standard of review is de novo for legal questions and clearly erroneous for factual questions. In re Bammer, 131 F.3d 788, 792 (9th Cir. 1997) (en banc). Mixed questions of law and fact are reviewed de novo. Id.
III Dischargeability The § 523(a)(5) exception to discharge strikes a balance between competing policies. On the one hand, the goal of providing a "fresh start" to the bankrupt debtor requires that exceptions to discharge be confined to those plainly expressed. In re Klapp, 706 F.2d 998, 999 (9th Cir. 1983). On the other hand, this court has recognized "an overriding public policy favoring the enforcement of familial obligations." Shaver v. Shaver, 736 F.2d 1314, 1316 (9th Cir. 1984).
When determining whether a particular debt is within the § 523(a)(5) exception to discharge, a court considers whether the debt is "actually in the nature of . . . support." Id. at 1316. This question is a factual determination made by the bank ruptcy court as a matter of federal bankruptcy law. In re Sternberg, 85 F.3d 1400, 1405 (9th Cir. 1996), rev'd on other grounds, In re Bammer, 131 F.3d 788 (9th Cir. 1997) (en banc). A relevant factor for the bankruptcy court to consider when making this determination is how the particular state law characterizes the debt. In re Catlow, 663 F.2d 960, 96263 (9th Cir. 1981).
California law permits the state court to appoint and provide for the compensation of a guardian ad litem, neutral experts, and mental health professionals, in consideration of Lindsay's best interests. Cal. Fam. Code §§ 3150, 3153, 3190, 4062 (West 1994 & Supp. 1998). The bankruptcy court considered the California law creating the debt and independently held that it created an obligation of support. In re Doe, 193 B.R. 12, 16 & n.9 (Bankr. N.D. Cal. 1996).
The bankruptcy court's well-reasoned conclusion finds support in this court's Catlow opinion, decided under the former 11 U.S.C. § 35(a)(7) (1976). In Catlow, attorney's fees awarded to the bankrupt's former spouse, incurred in a child custody proceeding, were nondischargeable as spousal support. 663 F.2d at 961, 963. The ex-spousal relationship at issue in Catlow does not distinguish that case from the instant case, because both the Bankruptcy Code and the former Act treat child support and spousal support as nondischargeable. The bankruptcy court did not clearly err in finding that Chang's debts to Ting and Beaupied are in the nature of Lindsay's support.
We next consider whether the identity of the payee requires affirming the BAP. The § 523(a)(5) exception to dischargeability applies on its face only to debts owed "to" a child or former spouse. In the instant case, the BAP held that because Beaupied's, the neutral experts', and the health professionals' fees were owed to individuals other than Lindsay, § 523(a)(5) did not apply. In re Chang, 210 B.R. 578, 583 (B.A.P. 9th Cir. 1997).
Fees paid to third parties on behalf of a child or former spouse can be "as much for . . . support as payments made directly to [the former spouse or child]." Catlow, 663 F.2d at 962-63. We hold in the instant case that the identity of the payee is less important than the nature of the debt. Thus, although Chang does not owe money directly to Lindsay, because Chang's debts to Ting and Beaupied are in the nature of support of Lindsay, they are nondischargeable.
Every circuit to consider this precise issue has held likewise. The Eighth Circuit,1 in In re Kline, 65 F.3d 749, 751 (8th Cir. 1995), specifically considered whether holdings under the prior Act remained vital under the Code. The Kline court held that "the statute continues to except from discharge attorney fees, even if payable to an attorney rather than to a former spouse, if such fees are in the nature of maintenance or support of the former spouse or of the child of the debtor." Id.
In In re Miller, 55 F.3d 1487, 1488 (10th Cir. 1995), the Tenth Circuit asked whether guardian ad litem and psychologist fees, incurred in divorce and child custody proceedings and ordered to be paid directly to the guardian ad litem and psychologist, were dischargeable. The court held that the appropriate emphasis was on whether the debt was in the nature of support and not on the identity of the payee. Id. at 1490. In so holding, the Tenth Circuit rejected a lower court's plain-language interpretation that, similar to the one here, would have required the debt to be payable to the child or former spouse. Id. at 1488, 1490; see also In re Jones, 9 F.3d 878, 881-82 (10th Cir. 1993) (holding that attorney's fees incurred in a custody action were nondischargeable under § 523(a)(5)).
In In re Dvorak, 986 F.2d 940, 941 (5th Cir. 1993), the Fifth Circuit considered the dischargeability of a child's guardian ad litem fees and an ex-spouse's attorney's fees in a custody proceeding following a divorce. Noting that the hearing for which the fees were incurred was "clearly for [the child]'s benefit and support," the court held that a courtordered obligation to pay the fees was nondischargeable under § 523(a)(5). Id.; see also In re Hudson, 107 F.3d 355, 357 (5th Cir. 1997) (holding nondischargeable attorney's fees owed directly to an attorney from a paternity suit).
The Second Circuit, the first to consider this issue under the current Bankruptcy Code, looked to the legislative history of § 523(a)(5) to determine that the nature of the debt was more important than the identity of the payee. In re Spong, 661 F.2d 6, 9-10 (2d Cir. 1981). The Spong debtor had been ordered to pay the former spouse's attorney's fees, and the court held that "it would be exalting form over substance to fail to treat appellee's agreement to pay his wife's counsel fee " as nondischargeable. Id. at 11.
IV Priority Nature of the Debts
The Bankruptcy Code also grants priority to "allowed claims for debts to a spouse, former spouse, or child of the debtor, for alimony to, maintenance for, or support of such spouse or child." 11 U.S.C. § 507(a)(7) (Supp. IV 1998). This language is identical to that in § 523(a)(5), which creates the exception to discharge. We agree with the bankruptcy court's holding that application of § 507(a)(7) should be coincidental with application of § 523(a)(5). In re Doe, 193 B.R. at 15. In the instant case, Beaupied and Ting are entitled to priority in Chang's chapter 13 plan.
REVERSED and REMANDED.
1 The Eighth Circuit's Adams v. Zentz, 963 F.2d 197 (8th Cir. 1992), decision does not contravene our holding today. The district court had held, as a matter of the relevant state law, that the child's best interests were not necessarily the dispositive consideration in a custody contest. Id. Further, the bankruptcy court had found that because neither parent posed a threat to the child's health or welfare, the debt to the former spouse's attorney arising from the custody battle was not in the nature of support. Id. at 200. In the instant case, by contrast, California law dictates that Lindsay's best interests control the appointment of a guardian ad litem, health professionals, and neutral experts. The bankruptcy court found as a factual matter that the expenses incurred were in the nature of support.
For reprint rights or to order a copy of your photo:
Email
Jeremy_Ellis@dailyjournal.com
for prices.
Direct dial: 213-229-5424