FILED DEC 16 2013 1 SUSAN M. SPRAUL, CLERK 2 U.S. BKCY. APP. PANEL OF THE NINTH CIRCUIT 3 UNITED STATES BANKRUPTCY APPELLATE PANEL 4 OF THE NINTH CIRCUIT 5 In re: ) BAP No. CC-12-1591-TaDPa ) 6 MATTHEW BANKS ASHWORTH, ) Bk. No. 11-10946-RK ) 7 Debtor. ) ______________________________) 8 ) MATTHEW BANKS ASHWORTH, ) 9 ) Appellant, ) 10 ) v. ) MEMORANDUM* 11 ) KATHRYN EHRGOTT; AMRANE COHEN,) 12 Chapter 13 Trustee, ) ) 13 Appellees. ) ______________________________) 14 Argued and Submitted on November 22, 2013 15 at Pasadena, California 16 Filed - December 16, 2013 17 Appeal from the United States Bankruptcy Court for the Central District of California 18 Honorable Robert N. Kwan, Bankruptcy Judge, Presiding 19 ________________________________ 20 Appearances: Richard G. Heston of Heston & Heston for Appellant Matthew Banks Ashworth; Scott H. Talkov of Reid & 21 Hellyer, APC for Appellee Kathryn Ehrgott. __________________________________ 22 Before: TAYLOR, DUNN, and PAPPAS, Bankruptcy Judges. 23 24 25 26 * This disposition is not appropriate for publication. 27 Although it may be cited for whatever persuasive value it may have (see Fed. R. App. P. 32.1), it has no precedential value. 28 See 9th Cir. BAP Rule 8013-1. 1 INTRODUCTION 2 Chapter 131 debtor Matthew Ashworth appeals from the 3 bankruptcy court’s order overruling Ashworth’s objection to the 4 proof of claim for domestic support obligations filed by his 5 ex-spouse, Kathryn Ehrgott. Ashworth objected, not to the 6 amount, but to § 507(a)(1)(A) priority classification of the 7 claim, asserting that the claim is, instead, a general unsecured 8 claim based on a pre-petition settlement of a civil action that 9 Ehrgott filed against him for personal injury. He argued that 10 the parties settled the civil action concurrently and in 11 conjunction with their divorce settlement and that they did not 12 intend any of the obligation to be for domestic support. 13 The bankruptcy court held a trial at which it considered 14 testimony and evidence regarding what the parties intended at the 15 time they agreed to the settlement terms. The bankruptcy court 16 followed the controlling Ninth Circuit authority established in 17 Friedkin v. Sternberg (In re Sternberg), 85 F.3d 1400 (9th Cir. 18 1996) and determined that Ehrgott proved by a preponderance of 19 the evidence that, at the time of the parties’ stipulated 20 agreement, they intended the entire obligation to be for 21 Ehrgott’s support. We conclude that the bankruptcy court 22 committed no error and AFFIRM. 23 24 25 26 1 Unless specified otherwise, all chapter and section 27 references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532, and all “Rule” references are to the Federal Rules of Bankruptcy 28 Procedure, Rules 1001-9037. - 2 - 1 BACKGROUND FACTS2 2 Ashworth and Ehrgott3 married in Georgia in 1999. During 3 the marriage, Ashworth worked in the banking industry and 4 received multiple promotions with substantial increases in salary 5 and bonuses. Ehrgott worked as a school teacher for the first 6 three years of the marriage, but remained at home after the birth 7 of their first child. 8 In April 2005, the parties separated and Ehrgott filed for 9 divorce in Tennessee, where they resided at the time. In 10 December 2005, during the pendency of the divorce proceeding, 11 Ehrgott also filed a civil action against Ashworth in the 12 Chancery Court for Knox County, Tennessee (the “Civil Action”), 13 seeking $10 million in general and punitive damages for battery, 14 fraud, intentional and negligent infliction of emotional 15 distress, and negligence.4 Later that month, Ehrgott gave birth 16 to the parties’ second child. 17 The Tennessee divorce court issued several orders that 18 required Ashworth to pay child support and alimony to Ehrgott 19 during the pendency of the divorce. In 2006, Ashworth’s annual 20 salary was $150,000, while Ehrgott had no outside source of 21 income and cared for their two young children. 22 23 2 We base the background facts, which are not in dispute, on the Joint Pretrial Order entered by the bankruptcy court on 24 January 13, 2012 (“JPTO”). 25 3 Ehrgott is Ashworth’s ex-spouse’s current name, after remarriage. 26 4 In support of her claims in the Civil Action, Ehrgott 27 alleged that Ashworth contracted herpes simplex 1 as a result of an extramarital affair and transmitted it to her. Ashworth later 28 stipulated that he infected Ehrgott with the virus. - 3 - 1 Eventually, the parties appeared in response to notices of 2 deposition in the Civil Action. At that time and with counsel 3 present, the parties discussed and then entered into a settlement 4 of all claims that arose in the divorce proceeding and the Civil 5 Action. The parties recited the settlement terms, which were 6 stenographically recorded, and then filed them in the form of a 7 Final Judgment in the divorce proceeding. 8 In the Final Judgment, the divorce court accepted the 9 agreement of the parties “for the settlement of property rights 10 and the equitable division of their marital property.” 11 Dkt. #24-1 at 2. As relevant here,5 Ashworth agreed and was 12 ordered to pay to Ehrgott the sum of $306,000 as alimony (the 13 “$306,000 Obligation”), payable in the amount of $1,500 per month 14 commencing November 1, 2006 and ending December 31, 2023 (a 15 period of over 17 years). For the period of time between 16 November 1, 2006 and May 31, 2008, however, Ashworth was required 17 to pay only $1,000 per month, accruing the balance of $500 per 18 month. The deferred alimony incurred interest at the rate of 8%, 19 with the unpaid total due on or before December 31, 2008. 20 The Final Judgment provides that Ashworth’s “alimony 21 obligation” is “not dischargeable in bankruptcy and terminates 22 only upon the death of [Ehrgott]” or upon full payment. 23 Dkt. #24-1 at 5. It further required Ashworth to obtain a life 24 insurance policy insuring the full amount, prohibited 25 modification of the amount, and provided that the paid amounts be 26 27 5 Parenting and child support issues were addressed separately in a Permanent Parenting Plan, but fully incorporated 28 into, and ordered and decreed by, the Final Judgment. - 4 - 1 tax deductible by Ashworth and reportable as taxable income by 2 Ehrgott. 3 Three paragraphs of the Final Judgment directly or 4 indirectly refer to the resolution of the Civil Action. 5 Paragraph 17 assigns responsibility to Ashworth for any uninsured 6 expenses Ehrgott incurred related to medical treatment for 7 herpes, while requiring Ehrgott to make reasonable efforts to 8 maintain her own health insurance coverage. Paragraph 18 recites 9 Ehrgott’s agreement to sign a release and to dismiss the Civil 10 Action. And the final paragraph provides for Ashworth to pay all 11 costs associated with both the divorce and the Civil Action.6 12 As agreed, Ehrgott executed a written “Release” of the 13 claims asserted in the Civil Action. The Release provides that 14 Ehrgott executed it “in consideration of the payment to [her] of 15 the sum of One Dollar ($1.00), and other good and valuable 16 consideration, as set forth in a transcript of the Agreed 17 Settlement, dated September 29, 2006, and the Final Judgment 18 . . . .“ Dkt. #24-3 at 2. 19 Ehrgott remarried in August 2007 and not long thereafter she 20 relocated with the parties’ minor children to Indiana, with 21 permission of the Tennessee divorce court and over Ashworth’s 22 objection. In 2009 and 2010, the parties litigated over child 23 support or alimony issues in multiple Indiana and Tennessee 24 25 26 6 The Final Judgment also provides for Ashworth to pay, “as alimony,” $40,000 of Ehrgott’s attorney’s fees directly to her 27 attorney in five equal annual payments. Dkt. #24-1 at 6. And it labeled such payments as “a domestic support obligation” that is 28 “nondischargeable in bankruptcy.” Id. - 5 - 1 courts.7 2 Ashworth made the required monthly payments to Ehrgott on 3 the $306,000 Obligation up until mid-2009.8 On January 7, 2011, 4 Ehrgott filed a notice of entry of sister-state judgment in 5 Orange County Superior Court,9 to collect on the $306,000 6 Obligation.10 Ashworth filed a chapter 13 petition on 7 January 21, 2011, in the Central District of California. 8 Ehrgott filed proof of claim no. 2 in Ashworth’s bankruptcy 9 case, seeking priority for a domestic support obligation under 10 § 507(a)(1)(A) in the amount of $259,682.81 (the “Claim”). She 11 attached copies of a payment history spreadsheet and the Final 12 7 Ehrgott first registered the child support order for 13 enforcement in Indiana, and amounts were ordered withheld from Ashworth’s wages. Ashworth unsuccessfully petitioned in Indiana 14 to stay the child support withholding order. The Indiana court thereafter entered a revised child support withholding order, 15 from which Ashworth appealed, arguing that his payments on the $306,000 Obligation should be deducted from his income when 16 calculating child support payments. Ashworth also petitioned the Tennessee court to extinguish the $306,000 Obligation on various 17 grounds. The Tennessee court denied Ashworth’s petition and specifically found that the lump sum alimony agreed upon by the 18 parties did not violate public policy. The court thereafter dismissed Ashworth’s petition as a matter of law. The Tennessee 19 court also stated that it would not entertain any further petitions seeking to modify the $306,000 Obligation. Thereafter, 20 the Indiana Court of Appeals reversed the Indiana trial court’s child support order, agreeing with Ashworth that the payments on 21 the $306,000 Obligation should reduce his child support payments. 22 8 Ashworth’s payments did not resume until 2011 when garnishment of his paychecks commenced pursuant to the 23 garnishment order obtained by Ehrgott in February 2011 for support and unpaid arrears on the $306,000 Obligation. Ashworth 24 testified that the garnishment continued during his chapter 13 case. 25 9 The record is not clear, but at some point Ashworth moved 26 to and now resides in California. 27 10 Ehrgott shortly thereafter commenced garnishment of Ashworth’s wages for support and unpaid arrears on the $306,000 28 Obligation. - 6 - 1 Judgment. Ashworth objected to the Claim (“Claim Objection”), 2 commencing a contested matter. 3 After completion of discovery11 the parties submitted the 4 JPTO. Ashworth and Ehrgott presented their direct testimony by 5 declarations, and the bankruptcy court held trial on the Claim 6 Objection on April 19, 2012. The bankruptcy court ultimately 7 filed and entered its Memorandum Decision finding that the Claim 8 was a domestic support obligation. The Order Overruling Debtor’s 9 Objection to Claim No. 2 was entered on November 2, 2012 10 (“Order”), and Ashworth timely filed a notice of appeal from the 11 Order. 12 JURISDICTION 13 The bankruptcy court had jurisdiction under 28 U.S.C. 14 §§ 1334, 157(b)(1), and 157(b)(2)(B). 15 Ehrgott argues in her opening brief that we lack 16 jurisdiction to hear this appeal based on mootness. She contends 17 that the appeal is moot due to two motions filed in the 18 bankruptcy court in February 2013 for dismissal of Ashworth’s 19 bankruptcy case.12 Notably, Ehrgott does not contend that the 20 case has been dismissed, and, in fact, the bankruptcy case 21 22 23 11 Also during the interlude between the filing of the Claim 24 Objection and trial, Ehrgott filed a motion for relief from stay seeking authority to allow her to seek determination of the 25 nature of the $306,000 Obligation from the state court in Tennessee handling the family law matter. The bankruptcy court 26 denied Ehrgott’s relief from stay motion. 27 12 Ashworth filed an ex parte request for voluntary dismissal, then Ehrgott filed a motion for dismissal with 28 prejudice to re-filing. - 7 - 1 remains pending.13 2 We lack jurisdiction to hear a moot appeal. IRS v. Pattullo 3 (In re Pattullo), 271 F.3d 898, 901 (9th Cir. 2001). Our 4 mootness inquiry necessarily focuses on whether we can still 5 grant effective relief between the parties. Id. Here, Ehrgott 6 fails to argue or allege facts from which we might conclude that 7 no relief is available. 8 Based on the current posture of the case, we conclude that 9 Ehrgott’s mootness contention is factually not well taken. As 10 long as the bankruptcy case remains pending, the claims allowance 11 process and decisions related thereto directly impact Ashworth’s 12 ability to confirm or perform under a chapter 13 plan, and relief 13 from this Panel is available. Therefore, the appeal is not moot, 14 and we have jurisdiction under 28 U.S.C. § 158(a)(1). 15 ISSUE 16 Whether the bankruptcy court erred when it determined that 17 the Claim was in the nature of support and therefore a “domestic 18 19 13 We have exercised our discretion to consult the bankruptcy court’s docket in Debtor’s bankruptcy case to assist 20 us in ascertaining the relevant facts and procedural background. O’Rourke v. Seaboard Sur. Co. (In re E.R. Fegert, Inc.), 887 F.2d 21 955, 959 (9th Cir. 1989). We note that Ashworth withdrew his request for dismissal and filed a motion seeking to modify or 22 suspend his unconfirmed chapter 13 plan. Ashworth’s motion seeks suspension of up to 34 pre-confirmation plan payments, pending 23 the outcome of this appeal. The chapter 13 trustee filed an opposition. To date, the bankruptcy court has not ruled on 24 Ehrgott’s motion to dismiss or on Ashworth’s motion to suspend payments, but rather continued the scheduled hearings on the 25 pending matters multiple times. The bankruptcy court most recently continued the hearings on both pending motions to 26 January 2014. Also continued for hearing in January 2014 is Ehrgott’s motion seeking recovery of attorney’s fees against 27 Ashworth under Tennessee law for enforcement of support obligations and under bankruptcy law for opposing Ashworth’s 28 alleged bad faith bankruptcy filing. - 8 - 1 support obligation” under § 101(14A) entitled to priority under 2 § 507(a)(1)(A). 3 STANDARD OF REVIEW 4 We review the bankruptcy court's legal conclusions de novo 5 and its findings of fact for clear error. See Allen v. US Bank, 6 NA (In re Allen), 472 B.R. 559, 564 (9th Cir. BAP 2012) (“‘An 7 order overruling a claim objection can raise legal issues (such 8 as the proper construction of statutes and rules) which we review 9 de novo, as well as factual issues (such as whether the facts 10 establish compliance with particular statutes or rules), which we 11 review for clear error.’”)(internal citation omitted). In the 12 context of this appeal, “[w]e review the bankruptcy court’s 13 factual determination that a debt was for alimony, maintenance, 14 or support for clear error.” See Seixas v. Booth (In re Seixas), 15 239 B.R. 398, 401 (9th Cir. BAP 1999). Review under the clearly 16 erroneous standard is significantly deferential and requires us 17 to accept the bankruptcy court’s findings unless we have a 18 definite and firm conviction that a mistake has been made. 19 United States v. Syrax, 235 F.3d 422, 427 (9th Cir. 2000). We 20 will affirm unless the bankruptcy court’s findings were 21 illogical, implausible, or without support in the record. United 22 States v. Hinkson, 585 F.3d 1247, 1261-62 (9th Cir. 2009). The 23 bankruptcy court’s choice among multiple plausible views of the 24 evidence cannot be clear error. United States v. Elliott, 25 322 F.3d 710, 714 (9th Cir. 2003). 26 DISCUSSION 27 Ashworth based the Claim Objection on his contention that 28 the $306,000 Obligation was not in the nature of support, but - 9 - 1 instead was intended as settlement of the Civil Action, and 2 therefore not entitled to priority. The bankruptcy court 3 considered the testimony and other evidence at trial and found 4 the obligation, instead, to be in the nature of support. We find 5 no clear error in the bankruptcy court’s decision. 6 A. Legal standards. 7 The Bankruptcy Code, in relevant part, grants first priority 8 status for unsecured claims for domestic support obligations that 9 are owed to or recoverable by a former spouse. See 10 § 507(a)(1)(A). The term “domestic support obligation” is 11 defined in § 101(14A).14 Section 507(a)(1) was amended and 12 13 14 Section 101(14A) provides, in relevant part, as follows: 14 The term “domestic support obligation” means a debt that accrues before, on, or after the date of the order 15 for relief in a case under this title, including interest that accrues on that debt as provided under 16 applicable nonbankruptcy law notwithstanding any provision under this title, that is, 17 (A) owed to or recoverable by– (i) a spouse, former spouse, or 18 child of the debtor . . . (B) in the nature of alimony, maintenance, or 19 support . . . of such spouse, former spouse, or child of the debtor . . . without regard 20 to whether such debt is expressly so designated; 21 (C) established or subject to establishment before, on, or after the date of the order 22 for relief in a case under this title, by reason of applicable provisions of– 23 (i) a separate agreement, divorce decree, or property settlement 24 agreement; (ii) an order of a court of record 25 . . . (D) not assigned to a nongovernmental entity, 26 unless that obligation is assigned voluntarily by the spouse, former spouse, 27 child of the debtor, or such child’s parent, legal guardian, or responsible relative for 28 the purpose of collecting the debt. - 10 -