Collins v. Solomon, Case No: 12-14664 (Oct. 29, 2013)
Oct 29, 2013OUTCOME: Award of attorney's fees declared non-dischargeable in bankruptcy
Wife had been granted a final decree of divorce in a state other than Virginia. The final decree of divorce included a provision for the award of wife’s attorney’s fees of $39,500 payable to wife’s di ... vorce lawyer in monthly installments of $5,000 until paid in full. The Court discussed at length the reasonableness of the substantial award of attorney’s fees to wife, due to the husband’s intentional concealment of his income and business records in the divorce case. Following the divorce case, the husband filed for chapter 13 bankruptcy relief in the U.S. Bankruptcy Court for the Eastern District of Virginia. In his bankruptcy case forms filed, the husband listed the wife’s divorce attorney as a general unsecured creditor on his Schedule F, rather than a priority creditor for a domestic support obligation on his Schedule E. The wife and her attorney filed an adversary proceeding in the bankruptcy court seeking a determination that the attorney’s fees debt owed to wife’s attorney was both a priority debt under 11 U.S.C. § 507(a)(1)(A) and a nondischargeable debt under 11 U.S.C. §523(a)(5) as a “domestic support obligation”, as defined in 11 U.S.C. 101(14A). Almost a year after the husband’s chapter 13 bankruptcy filing, the wife filed a chapter 7 bankruptcy case pro se in the United States Bankruptcy Court for the Eastern District of Virginia. She also terminated her relationship with the divorce attorney who was owed fees by the ex-husband in his chapter 13 bankruptcy. In her chapter 7 case, the wife sought, and later obtained, a discharge of the debt owed to her divorce lawyer. The Bankruptcy court judge ignored the separation agreement between the parties, as it had not been incorporated into the final decree of divorce, was therefore not properly part of the record for consideration. On appeal, the U.S. District Court held that, even if part of the record, the separation agreement would not have supported the husband’s argument. The U.S. Bankruptcy Court denied the husband’s motion to dismiss the adversary proceeding and declared that the attorney’s fees owed to wife’s attorney were nondischargeable in the husband’s chapter 13 bankruptcy case under 11 U.S.C. §523(a)(5) as a domestic support obligation. The husband appealed the bankruptcy court’s decision to the U.S. District Court, where the matter was decided on the briefs, without oral argument. On appeal, the parties agreed that the only issue was whether the wife’s former divorce lawyer was a proper party to bring the nondischargeability complaint in the bankruptcy court. The appellate court in Collins held that the attorney had standing to bring a nondischargeability complaint against the debtor husband, whether the attorney was a party to the obligation or a third-party beneficiary, because the divorce court judge intended that the husband pay the wife’s attorney’s fees in the final decree of divorce. Further, the court noted that bankruptcy court judges have equitable powers “…invoked to the end that fraud will not prevail, that substance will not give way to form, that technical considerations will not prevent substantial justice from being done…”, quoting Pepper v. Litton, 308 U.S. 295 (1939). In this case, the court concluded, it would be unjust to deny the wife’s attorney the attorney’s fees based on both the plain language of the final decree and the record of husband’s conduct in the divorce proceedings.
