Opinion
No. 3:99-38188-HCA-7, No. 3:02-CV-490-M
July 8, 2002
MEMORANDUM ORDER AND OPINION
Appellant Scot Stebbins ("Stebbins") brings this appeal, pursuant to 28 U.S.C. § 158 (a), of the Order on Motions for Summary Judgment, Judgment, and Order on Motion for New Trial or Reconsideration signed by Bankruptcy Judge Harold C. Abramson on January 2, 2002, January 23, 2002, and January 30, 2002, respectively. Stebbins alleges that the Bankruptcy Court erred by applying the doctrine of quasi-estoppel against him to prevent him from arguing that divorce settlement payments to his wife were dischargeable under the Bankruptcy Code. For the reasons stated below, this Court AFFIRMS the Bankruptcy Court's decisions and Judgment in this case.
I. Factual Summary
This case involves the status of an obligation to make monthly payments pursuant to a marriage Separation Agreement after the obligor filed for Chapter 7 bankruptcy. Stebbins and Appellee, Gwenn Seibert ("Seibert"), wed on May 21, 1989 and divorced on August 14, 1997. The couple executed a Separation Agreement on June 2, 1997. Paragraph 4 of the Separation Agreement contains provisions relating to "Spousal Support." The relevant terms of paragraph 4 require Stebbins to pay Seibert $2,150 per month (Monthly Payments) until such time as a mortgage on a condominium owned by Seibert is retired, regardless of whether Seibert lives until the debt is retired. Paragraph 4 categorizes the payments contained therein as "alimony," and states that the parties' intent at the time they executed the agreement was to treat the Monthly Payments as taxable income on Seibert's tax return and as tax deductible on Stebbins's tax return.
On August 14, 1997, the divorce was finalized in a Divorce Decree entered by an Ohio court. The Divorce Decree incorporated the terms of the Separation Agreement.
Stebbins made the Monthly Payments "without significant interruption" until December 2000. On his federal tax returns, Stebbins claimed all monies paid to Seibert during tax years 1997, 1998, and 1999 as deductible alimony payments. On her federal tax returns, Seibert claimed the Monthly Payments as taxable income derived from alimony payments during tax years 1997, 1998, and 1999.
II. Standard of Review
This Court reviews summary judgments granted by a United States Bankruptcy Court de novo. A court may grant a motion for summary judgment when "there is no genuine issue as to any material fact." A factual issue is material when "its resolution could affect the outcome of the action," and a dispute about a material fact is "genuine" . . . if the evidence is such that a reasonable jury could return a verdict for the non[-]moving party. In determining whether any genuine issue of material fact exists, a court must view the evidence presented in the light most favorable to the non-movant, and draw all reasonable inferences in the non-movant's favor. If the moving party establishes that no genuine issues of material fact exist, "the burden shifts to the non[-]moving party to show that summary judgment is not appropriate." To defeat a summary judgment motion, the non-moving party must "go beyond the pleadings and by her own affidavits, or by the depositions, answers to interrogatories, and admissions on file," designate "specific facts showing that there is a genuine issue for trial."
See In re Phones for All, Inc., 262 B.R. 914, 915 (N. D. Tex. 2001) (citing Matter of Webb, 954 F.2d 1102, 1103-04 (5th Cir. 1992)) ("[A district court] functions as an appellate court and applies the standards of review generally applied in federal court appeals."); Cooper Cameron Corp. v. U.S. Dept. of Labor, Occupation Safety Health Admin., 280 F.3d 539, 543 (5th Cir. 2002) (holding that summary judgments are reviewed de novo).
GeoSouthern Energy Corp. v. Chesapeake Operating Inc., 274 F.3d 1017, 1020 (5th Cir. 2001).
Id. (internal quotation marks omitted).
Id.
Provident Life Accident Ins. Co. v. Goel, 274 F.3d 984, 991 (5th Cir. 2001) (internal quotation marks omitted).
Id.
Seibert, as the party seeking to establish that the Monthly Payments are a nondischargeable debt, bears the burden of persuading this Court by a preponderance of the evidence that the Monthly Payments qualify as a nondischargeable support obligation under 11 U.S.C. § 523 (a)(5). "Intertwined with this burden is the basic principle of bankruptcy that exceptions to discharge must be strictly construed against a creditor and liberally construed in favor of a debtor so that the debtor may be afforded a fresh start."
Hudson v. Raggio Raggio, Inc., 107 F.3d 355, 356 (5th Cir. 1997).
Id.
III. Analysis
The Bankruptcy Court based its grant of summary judgment in favor of Seibert on the fact that Stebbins had deducted the Monthly Payments from his income taxes as alimony and Seibert had paid the corresponding income taxes. The Court concluded that the income tax treatment was sufficient to apply quasi-estoppel against Stebbins, reasoning that Stebbins accrued a pecuniary benefit under the Tax Code at a cost to Seibert and that he should not be able to make a contradictory argument to gain a benefit under the Bankruptcy Code. For this reason, the Bankruptcy Court did not make an inquiry into the intent of the parties in entering into the Separation Agreement or any factual findings concerning that intent.The Bankruptcy Court viewed the fact that Stebbins claimed the Monthly Payments as alimony on his income tax returns as dispositive under Davidson v. Davidson. In Davidson, a debtor had an obligation to make certain monthly payments to his ex-spouse. These payments, like the Monthly Payments in the instant case, arose from execution of a marriage settlement agreement. The Davidson debtor claimed the payments as alimony on his federal tax returns in order to gain the benefit of a deduction under 26 U.S.C. § 71 (b) and 215(a). However, he then argued that the payments were not alimony, but instead were a property settlement, to avoid the alimony exception to discharge in bankruptcy under 11 U.S.C. § 523 (a)(5). The Fifth Circuit refused to allow the debtor to make this argument, stating:
Order on Mot. for Summ. J. at 4-5, R. at 323-24; See 947 F.2d 1294, 1297 (5th Cir. 1991).
Davidson, 947 F.2d at 1295.
Id.
To allow a spouse to set up an intricate and unambiguous divorce settlement, carefully distinguishing certain periodic payments, called alimony, from the division of marital property, and consistently taking advantage of this characterization for tax purposes, only then to declare that the payments truly represented a division of property, would be a legal affront to both the bankruptcy and tax codes. To uphold the discharge of those payments in bankruptcy would reward an admitted manipulation tantamount, at best, to deception.
Id. at 1297.
Stebbins argues that the Bankruptcy Court erred in applying the doctrine of quasi-estoppel against him because he illegally deducted the Monthly Payments as alimony on his tax returns. The Court finds this argument unavailing, because the statute of limitations for the Internal Revenue Service to bring an action to recover the improper deductions on Stebbins's 1997 and 1998 tax returns has now run. Therefore, Stebbins has irrevocably received the statutory benefit of deducting the Monthly Payments from his tax liability in 1997 and 1998, while Seibert had to claim the Monthly Payments as income on her tax returns. In light of those facts, the Bankruptcy Court properly applied Davidson to find that Stebbins was estopped from claiming the payments were not alimony.
The Court notes that Stebbins improperly treated the Monthly Payments as alimony on his tax return because the terms of the Separation Agreement provided that the payments would extend beyond the death of the payee spouse. See I.R.C. § 71(b)(1)(D). The United States Tax Court and at least one circuit court have interpreted § 71(b)(1)(D) as disallowing a payor spouse's deduction of marriage settlement payments if the agreement creating the obligation to make the payments required payment beyond the death of the payee spouse, unless state law automatically required the payments to cease upon the death of the payee spouse. Zinsmeister v. Comm'r, 80 T.C.M. (CCH) 774 (2000), aff'd, 21 Fed. Appx. 529, 2001 WL 1327059 (8th Cir. Oct. 30, 2001); Hoover v. Comm'r, 102 F.3d 842, 845-46 (6th Cir. 1996). Ohio law provides that spousal support payments will terminate on the death of the payee spouse, unless the order containing the award expressly provides otherwise. OHIO REV. CODE ANN. § 3105.18 (West 2002). The Divorce Decree at issue in this case provides that the monthly payments will not terminate on the death of the payee spouse.
Id. § 6501(a).
See Davidson, 947 F.2d at 1297.