Vaughn v. Vaughn (In re Vaughn)

The trial court determined that Philip's CJPM debt was nondischargeable. It concluded that the debt did not have to be directly payable to Charlene to fall under the exemption set forth in section 523(a)(15). The court calculated that Philip owes Charlene $345,963, representing $150,000 principal plus accrued interest.

DISCUSSION

A Chapter 7 bankruptcy generally discharges all of an individual's debts, but there are exceptions. ( In re Hicks (Bankr. D.Mass. 2005) 331 B.R. 18 , 22 ; see § 727(a), (b).) Debts excepted from discharge are limited to those "plainly expressed" in federal bankruptcy statutes. ( Bullock v. BankChampaign, N.A. (2013) 569 U.S. 267 , 275-276, 133 S.Ct. 1754 , 185 L.Ed.2d 922 .) They include debts for "domestic support obligation[s]" ( § 523(a)(5) ) and those "to a spouse, former spouse, or child of the debtor and not of the kind described in paragraph (5) that [are] incurred by the debtor in the course of a divorce or separation or in connection with a separation agreement, divorce decree, or other order of a court of record" ( § 523(a)(15) ). State courts have concurrent jurisdiction to decide whether a debt is dischargeable under these provisions. ( In re Doll (Bankr. N.D.Ohio 2018) 585 B.R. 446 , 461, fn. 7 ; see 28 U.S.C. § 1334 (b).)

Whether Philip's debt to CJPM is nondischargeable presents a mixed question of law and fact. ( Miller v. United States (9th Cir. 2004) 363 F.3d 999 , 1003-1004.) The interpretation of section 523(a)(15) is a question of law for

We review the trial court's resolution of disputed facts and inferences for substantial evidence. ( HLC Properties, Ltd. v. Superior Court (2005) 35 Cal.4th 54 , 60, 24 Cal.Rptr.3d 199 , 105 P.3d 560 .)

Philip's debt to CJPM is a debt to a former spouse

Philip first contends section 523(a)(15) 's meaning is "clear and unambiguous," and requires that his debt be payable directly to Charlene to be nondischargeable. ( In re Reinhardt (Bankr. M.D.Fla. 2012) 478 B.R. 455 , 457 ( Reinhardt ); see also In re Gunness (9th Cir. BAP 2014) 505 B.R. 1 , 7-8 ( Gunness ) [ section 523(a)(15) should be interpreted narrowly to afford debtors a "fresh start"].) But most courts have determined that section 523(a)(15) 's language is ambiguous, and should be interpreted "broadly and liberally ... to encourage payment of familial obligations rather than to give a debtor a fresh financial start." ( In re Reynolds (Bankr. M.D.Fla. 2016) 546 B.R. 232 , 237 ; see also id. at p. 236, fn. 19 [compiling cases].) We agree with the latter line of cases.

Section 523(a)(15) 's legislative history supports a broad interpretation. For over a century, Congress has sought to protect a debtor's spouse and children

Philip's promise to repay his debt was incurred in connection with a divorce decree

Philip next contends only his promise to indemnify and hold Charlene harmless for his debt to CJPM-and not his promise to repay that debt-was incorporated into the dissolution judgment and is thus nondischargeable. ( In re Brown (Bankr. S.D.Ga. 2013) 488 B.R. 810 , 813.) We disagree.

Section 10.1 of the dissolution judgment awarded to Philip, as his separate debt, the CJPM loan. The promissory note on that loan requires Philip to repay the $150,000 he borrowed. Philip's promise to repay his debt to CJPM was incorporated, by reference, into the dissolution judgment. ( Flynn v. Flynn (1954) 42 Cal.2d 55 , 59, 265 P.2d 865 .) It was therefore incurred in connection with a divorce decree, and is nondischargeable. ( Francis , supra , 505 B.R. at pp. 916, 921-922 [debtor husband's promise to pay debts assigned to him in divorce was nondischargeable]; see also Wodark , supra , 425 B.R. at pp. 838-839 [same]; In re Burckhalter (Bankr. D.Colo. 2008) 389 B.R. 185 , 190 [same].)

The warranty clause in section 11.0 of the dissolution judgment also includes Philip's promise to repay the CJPM debt. To "indemnify" a person is to "save [them] from a legal consequence of the conduct of one of the parties , or of some other person." ( Civ. Code, § 2772, italics added.) It is "the obligation resting on one party to make good a loss or damage another party has incurred." ( Rossmoor Sanitation, Inc. v. Pylon, Inc. (1975) 13 Cal.3d 622 , 628, 119 Cal.Rptr. 449 , 532 P.2d 97 ( Roosmoor ).)

While indemnity usually relates to third party claims, it may also refer to direct liability. (

The statute of limitations does not bar Charlene's action

Philip next contends that, even if his CJPM debt was nondischargeable, he cannot be forced to pay it because the statute of limitations has run. (See Code Civ. Proc., § 337 [four-year statute of limitations to enforce obligations in a promissory note].) He bases his contention on the assumption that CJPM would have to bring a claim against Charlene to recover Philip's unpaid debt, and Charlene would then have to bring a claim against him to recover her damages. But Charlene's right of recovery is based on the dissolution judgment, not an action to enforce the promissory note. The statute of limitations for the enforcement of a dissolution judgment is 10 years. ( Code Civ. Proc., § 337.5, subd. (b) ; see In re Marriage of Hanley (1988) 199 Cal.App.3d 1109 , 1121, 245 Cal.Rptr. 441 .)

The trial court properly calculated the amount owed

Finally, Philip contends Charlene is entitled to recover, at most, $150,000 because her capital account has not been charged interest. He cites no evidence in support of this contention. ( People v. Garza (2005) 35 Cal.4th 866 , 881, 28 Cal.Rptr.3d 335 , 111 P.3d 310 [party attacking judgment must affirmatively demonstrate error on appeal].) It is forfeited. ( Fernandes v. Singh (2017) 16 Cal.App.5th 932 , 942-943, 224 Cal.Rptr.3d 751 .)

liability[,] or obligation, the party who incurred such debt, liability[,] or obligation will[,] at his or her sole expense, defend the other party against any such claim or demand or threat thereof ....

Later that year, Philip filed for Chapter 7 bankruptcy. All of his debts, including his loan from CJPM, were discharged.

In 2015, Charlene moved to reopen bankruptcy proceedings to obtain a ruling that Philip's debt to CJPM was nondischargeable. The bankruptcy court declined to reopen the case. It did not decide whether the debt was dischargeable.

If section 523(a)(15) 's meaning is unclear, we examine its legislative history to determine Congress's intent. ( Pacific Palisades Bowl Mobile Estates, LLC v. City of Los Angeles (2012) 55 Cal.4th 783 , 803, 149 Cal.Rptr.3d 383 , 288 P.3d 717 .) We strive to harmonize provisions relating to the same subject matter ( Lakin v. Watkins Associated Industries (1993) 6 Cal.4th 644 , 659, 25 Cal.Rptr.2d 109 , 863 P.2d 179 ), bearing in mind that "[w]here a statute is framed in language of an earlier enactment on the same or an analogous subject, and that enactment has been judicially construed, [Congress] is presumed to have adopted that" interpretation in the more recently enacted statute ( People v. Harrison (1989) 48 Cal.3d 321 , 329, 256 Cal.Rptr. 401 , 768 P.2d 1078 ( Harrison ) ). We also "consider the impact of an interpretation on public policy, for '[w]here uncertainty exists consideration should be given to the consequences that will flow from a particular interpretation.' [Citation.]" (

As enacted, section 523(a)(15) worked in conjunction with section 523(a)(5). ( In re Cordia (Bankr. N.D.Ohio 2001) 280 B.R. 138 , 146.) Former section 523(a)(5) exempted from discharge any debt "to a spouse, former spouse, or child of the debtor, for alimony to, maintenance for, or support of such spouse or child, in connection with a separation agreement [or] divorce decree." Former section 523(a)(15) exempted from discharge any debt, other than one described in section 523(a)(5), "that [was] incurred by the debtor in the course of a divorce or separation." Section 523(a)(15) thus enlarged the scope of nondischargeable debts to any debt incurred in the course of a divorce or separation, unless the debtor was unable to repay the debt or the benefit of discharging the debt outweighed the benefit to the spouse or child. Together, sections 523(a)(5) and 523(a)(15)"demonstrate[d] a policy against discharging ... essentially any debt arising out of the demise of a marital relationship." ( In re Nugent (Bankr. S.D.Tex. 2012) 484 B.R. 671 , 684.)

In 2005, Congress enacted the Bankruptcy Abuse Protection and Consumer Protection Act (BAPCPA). ( In re Wodark (10th Cir. BAP 2010) 425 B.R. 834 , 837 ( Wodark ).) "One of Congress's overarching themes in enacting BAPCPA was to redefine and reinforce the ability of [nondebtor] former spouses to recover both support and property settlement obligations from debtors in bankruptcy." ( Id. at p. 838.) It sought to accomplish this goal by eliminating the provisions of

The elimination of the words "to a spouse, former spouse, or child" from section 523(a)(5) necessitated their addition to section 523(a)(15), given the latter's reference to the former. ( Wodark , supra , 425 B.R. at p. 838.) Thus, rather than narrowing the scope of debts exempt from discharge pursuant to section 523(a)(15), as Philip maintains, BAPCPA restated them. ( Ibid. ) It did not add a "direct pay" requirement. ( In re Francis (9th Cir. BAP 2014) 505 B.R. 914 , 919-920 ( Francis ); see also In re Prensky (Bankr. D.N.J. 2009) 416 B.R. 406 , 410 [BAPCPA was "intended to increase the scope of the discharge exception," not limit its protection to spouses, former spouses, and children].)

Prior judicial interpretations of section 523(a)(5) reinforce our conclusion. Before BAPCPA's enactment in 2005, the phrase "to a spouse, former spouse, or child" was part of section 523(a)(5). Most courts broadly interpreted that phrase "to provide an exception from discharge for certain debts to third parties ... when the debts were incurred ... in furtherance of domestic support obligations." ( In re Langman (Bankr. D.N.J. 2012) 465 B.R. 395 , 406 ; see also In re Chang (9th Cir. 1998) 163 F.3d 1138 , 1140-1142 [collecting cases].) What mattered, the courts said, was "the nature of the debt rather than the identity of the payee" ( In re Miller (10th Cir. 1995) 55 F.3d 1487 , 1490 )-i.e., whether "discharge of the debt would have adversely impacted the finances" of the debtor's spouse, former spouse, or child ( Gunness , supra , 505 B.R. at p. 6 ).

We presume Congress was aware of and adopted this interpretation when it enacted BAPCPA. ( Harrison , supra , 48 Cal.3d at p. 329, 256 Cal.Rptr. 401 , 768 P.2d 1078 .) It would be "strange indeed" if Congress intended a different statutory interpretation when it moved the phrase "to a spouse, former spouse, or child" to section 523(a)(15). ( In re Notary (Bankr. D.Colo. 2016) 547 B.R. 411 , 421-422.) We accordingly hold that a debt is nondischargeable pursuant to section 523(a)(15) if the nature of the debt is such that its discharge would directly and adversely impact the finances of the debtor's spouse or former spouse. The identity of the payee is not determinative.

Here, the trial court correctly determined that Philip's debt to CJPM is a debt to a former spouse. Philip's loan came from Charlene's share of CJPM. The debt was credited against her partnership interest, and her

Philip's concern that our interpretation of section 523(a)(15) will lead to inequitable results is misplaced. In Reinhardt , supra , 478 B.R. 455 , 457, on which Philip relies,

In section 11.0 of the dissolution judgment, Philip released Charlene "from any and all liabilities, debts[,] or obligations" that he had incurred, and "indemnif[ied] and [held her] harmless therefrom." (Italics added.) He also agreed to defend her against " any claim, action[,] or proceeding ... seeking to hold [her] liable on account of any such debt, liability[,] or obligation." (Italics added.) The use of such broad language demonstrates the parties' intent that the warranty clause refer to both direct and third-party liability. ( Hot Rods, LLC v. Northrop Grumman Systems Corp. (2015) 242 Cal.App.4th 1166 , 1181, 196 Cal.Rptr.3d 53 .) Had they instead intended to narrow the clause to only cover third-party claims, they could have done so expressly. ( Zalkind , supra , 194 Cal.App.4th at p. 1026, 124 Cal.Rptr.3d 105 .)

DISPOSITION

The judgment is affirmed. Charlene Yu Steele Vaughn shall recover costs on appeal.

We concur:

YEGAN, Acting P. J.

PERREN, J.