Litigation

Fifteen years later, Chickering filed for bankruptcy protection under Chapter 7 of the Bankruptcy Code. He still owed Penberthy approximately $1 million, which he listed in his papers as a “dissolution settlement,” and an undisputed non-priority unsecured claim. The following year, Penberthy filed a Proof of Claim in the bankruptcy matter for $1,297,716. She asserted there that just over $1 million of that amount was entitled to priority status, including $916,666 due to her under the Settlement Agreement.

Chickering soon converted his Chapter 7 claim to a Chapter 11 bankruptcy proceeding, again listing the Penberthy debt as a non-priority, general unsecured claim. He filed a second amended disclosure statement on Feb. 18, 2004, in which he cited to 11 U.S.C. §§ 507(a)(3)—(a)(7), which requires priority claims to be placed in a separate class. He specifically wrote in that disclosure statement that no such priority claims existed in his case. He also specifically classified his debt to Penberthy as a “Class 4″ general unsecured claim. This disclosure statement was served on Penberthy and her attorney, who was chairman of the bankruptcy practice group of Dewey Ballentine LLC.

Penberthy did not object to the statement, even though she had, in response to Chickering's first bankruptcy filing, asserted that over $1 million of the debt he owed her was entitled to priority status. Later filings in Chickering's case continued to describe the Penberthy debt as unsecured and non-priority, and Penberthy made no objection. The bankruptcy plan provided that unsecured claims would be paid, pro rata, from receipts earned from the sale of coal by West Virginia Mid Vol, Inc., a non-debtor coal-mining affiliate of Chickering.

On May 5, 2004, Penberthy accepted the bankruptcy plan by casting her ballot as a debtor in favor of it. She did not object to the statement on the ballot that said, “The undersigned, a Class 4 (General Unsecured Claims) holder under the Plan hereby: ACCEPTS the Plan.” The bankruptcy court affirmed the plan on June 8, 2004, and Penberthy did not appeal. The bankruptcy proceeding was closed on Jan. 26, 2005.

Eleven years later, Penberthy filed a complaint claiming that the bankruptcy plan had not, in fact, discharged her claims against Chickering, because it could not: The monies owed Penberthy were, she asserted, payments for maintenance, support and unreimbursed medical expenses in conjunction with the couple's marriage dissolution action, and they were non-dischargeable in bankruptcy. For this proposition, she pointed to 11 U.S.C. § 1141(d)(2), which provides that a discharge under Chapter 11 does not discharge debts excepted under 11 U.S.C. § 523 — and domestic support obligations are included as excepted debts under § 523.

Chickering moved for judgment on the pleadings and dismissal, making three separate arguments. The first of these was issue preclusion, based on the fact that the bankruptcy court approved the discharge plan in a process in which Penberthy had fully participated, rendering that issue res judicata. The second was that Penberthy should be judicially estopped from advancing her § 523 nondischargability argument, due to her vote in favor of the discharge plan. And the third was that the debts owed to Penberthy were not covered by § 523 in the first place.

On the issue-preclusion matter, the court noted that a judicial confirmation of a bankruptcy plan is considered a final judgment on the merits, and a party who litigated an issue in a prior proceeding that went to final judgment is precluded from arguing that issue in a subsequent proceeding. In addition, Chapter 11 of the Bankruptcy Code takes that principle further by precluding later litigation of matters that were raised or could have been raised in the bankruptcy proceeding once the plan has been confirmed. 11 U.S.C. § 1141(a). “Under this authority,” the court stated, “Penberthy's claims are barred. Chickering's debts to Penberthy under the Settlement Agreement, including both the $916,666.63 in outstanding principal and the $42,000 in unpaid health insurance, not only could have been, but actually were decided by the Bankruptcy Court in confirming the Plan.”

The court reached this conclusion in spite of the fact that it credited Penberthy's argument that a bankruptcy court is precluded from discharging a support obligation through discharge of that debt. As the court explained:

Section 1141(d)(2) does indeed provide that confirmation of a plan 'does not discharge an individual debtor from any debt exempted from discharge under section 523 of this title.' Therefore, had the Plan purported to discharge support payments covered under § 523, it would indeed likely have been powerless to do so, because such payments are non-dischargeable. But that is not the basis of Chickering's claim of res judicata. His claim is that the Plan determined, conclusively, as a factual matter, that the debts owed by Chickering to Penberthy were not of the sort covered by § 523, and therefore were dischargeable (and ultimately discharged) non-priority debts. Put differently, the preclusive effect of the Confirmed Plan follows from its factual classification of the debts as of a non-support, non-priority nature, not from an errant legal conclusion (for it made none) that support payments covered by § 523 are legally dischargeable.

On Chickering's judicial estoppel argument, the court pointed to the U.S. Court of Appeals for the Second Circuit's explanation in DeRosa v. Nat'l Envelope Corp., 595 F.3d 99, 103 (2d Cir. 2010), of the factors necessary for invoking that doctrine. They are: 1) that the party against whom the doctrine is invoked took a different position on an issue in an earlier proceeding; 2) that this position was adopted by the court in that earlier proceeding; and 3) that the party asserting the right to argue a different position now would derive an unfair advantage over the party seeking estoppel if allowed to do so in the current proceeding. The court found all three elements present in the Chickering/Penberthy dispute before it.

Penberthy did attempt to overcome the court's conclusion by pointing to the case of In re Talsma, 496 B.R. 828 (Bankr. N.D. Tex. 2013), in which the bankruptcy court held that a former wife's vote in favor of a bankruptcy plan that partially disallowed her support claim should not be construed as a vote in favor of discharging all of that claim; instead, her acceptance should be treated as a vote for the dischargable portion of her claim to be paid under the plan, while she maintained her rights as to the nondischargable portion

Using this interpretation of the creditor/wife's actions, the Talsma court found that the wife's vote for the discharge plan was not “plainly inconsistent” with her insistence that her right to receive support survived the bankruptcy. But the court declared Talsma “inapposite” to the Chickering/Penberthy case, as there was no way to explain Penberthy's acceptance of the discharge plan in any way other than that she had completely accepted it. After all, unlike in Talsma, no portion of Penberthy's support claim had been deemed nondischargable.

Having found for Chickering on his first two arguments, the court declined to reach the final one. It therefore granted Chickering's motion for judgment on the pleadings and ordered the case closed.

Seventeen Is Old Enough

A Bronx, NY, court has declared that a 17-year-old child is old enough to determine his own visitation schedule with his mother. A.A. v. E.R., V-03243-13/13A (April 5); N.Y.L.J. Pg. p.17, col.3 Vol. 257 No. 82.

Both parents filed modification petitions seeking to change the custody and visitation arrangements for their two children, ages 12 and 17. The father already held sole legal and physical custody of both children, but he wanted to discontinue their mid-week visitations with their mother because, he claimed, she continually violated the visitation order by keeping the children too long. The mother sought legal custody, while the attorney for the children asked that they be permitted to set their own visitation schedules. The court found it was not in the children's best interests to alter legal and physical custody, but that modification of visitation was warranted. The younger child was deemed too young to set a visitation schedule, but the court held that the 17-year-old could determine for himself just how much visitation he would have with his mother.

Acquiescence to Bankruptcy Plan Extinguished Support Claimant's Rights

The U.S. District Court for the Southern District of New York has held that a woman who accepted the discharge of her ex-husband's debts to her in a bankruptcy proceeding is bound by that acceptance, even though she argued that the debt was non-dischargeable in bankruptcy because it was a support obligation. Penberthy v. Chickering, 2017 U.S. Dist. LEXIS 6153 (S.D.N.Y. 1/13/17).

Beverly Penberthy and Donn A. Chickering entered into a Stipulation of Settlement in conjunction with their divorce proceedings on Feb. 2, 1994, providing that:

• Chickering would immediately pay $1 million to Penberthy, which the document termed a “distributive award”;
• Penberthy would take sole ownership of the marital residence in Rye, NY, along with two vehicles;
• Chickering would cover the costs of Penberthy's medical care for three years by maintaining insurance for her and paying any medical costs not covered by it, unless Penberthy received free insurance from her employer; and
• Chickering would pay Penberthy “as and for her support and maintenance,” $83,333 per month for a six-year term, which payments would total $6 million.

The settlement agreement was incorporated in the Judgment of Divorce, which was finalized on July 25, 1994.

Fifteen years later, Chickering filed for bankruptcy protection under Chapter 7 of the Bankruptcy Code. He still owed Penberthy approximately $1 million, which he listed in his papers as a “dissolution settlement,” and an undisputed non-priority unsecured claim. The following year, Penberthy filed a Proof of Claim in the bankruptcy matter for $1,297,716. She asserted there that just over $1 million of that amount was entitled to priority status, including $916,666 due to her under the Settlement Agreement.

Chickering soon converted his Chapter 7 claim to a Chapter 11 bankruptcy proceeding, again listing the Penberthy debt as a non-priority, general unsecured claim. He filed a second amended disclosure statement on Feb. 18, 2004, in which he cited to 11 U.S.C. §§ 507(a)(3)—(a)(7), which requires priority claims to be placed in a separate class. He specifically wrote in that disclosure statement that no such priority claims existed in his case. He also specifically classified his debt to Penberthy as a “Class 4″ general unsecured claim. This disclosure statement was served on Penberthy and her attorney, who was chairman of the bankruptcy practice group of Dewey Ballentine LLC.

Penberthy did not object to the statement, even though she had, in response to Chickering's first bankruptcy filing, asserted that over $1 million of the debt he owed her was entitled to priority status. Later filings in Chickering's case continued to describe the Penberthy debt as unsecured and non-priority, and Penberthy made no objection. The bankruptcy plan provided that unsecured claims would be paid, pro rata, from receipts earned from the sale of coal by West Virginia Mid Vol, Inc., a non-debtor coal-mining affiliate of Chickering.

On May 5, 2004, Penberthy accepted the bankruptcy plan by casting her ballot as a debtor in favor of it. She did not object to the statement on the ballot that said, “The undersigned, a Class 4 (General Unsecured Claims) holder under the Plan hereby: ACCEPTS the Plan.” The bankruptcy court affirmed the plan on June 8, 2004, and Penberthy did not appeal. The bankruptcy proceeding was closed on Jan. 26, 2005.

Eleven years later, Penberthy filed a complaint claiming that the bankruptcy plan had not, in fact, discharged her claims against Chickering, because it could not: The monies owed Penberthy were, she asserted, payments for maintenance, support and unreimbursed medical expenses in conjunction with the couple's marriage dissolution action, and they were non-dischargeable in bankruptcy. For this proposition, she pointed to 11 U.S.C. § 1141(d)(2), which provides that a discharge under Chapter 11 does not discharge debts excepted under 11 U.S.C. § 523 — and domestic support obligations are included as excepted debts under § 523.

Chickering moved for judgment on the pleadings and dismissal, making three separate arguments. The first of these was issue preclusion, based on the fact that the bankruptcy court approved the discharge plan in a process in which Penberthy had fully participated, rendering that issue res judicata. The second was that Penberthy should be judicially estopped from advancing her § 523 nondischargability argument, due to her vote in favor of the discharge plan. And the third was that the debts owed to Penberthy were not covered by § 523 in the first place.

On the issue-preclusion matter, the court noted that a judicial confirmation of a bankruptcy plan is considered a final judgment on the merits, and a party who litigated an issue in a prior proceeding that went to final judgment is precluded from arguing that issue in a subsequent proceeding. In addition, Chapter 11 of the Bankruptcy Code takes that principle further by precluding later litigation of matters that were raised or could have been raised in the bankruptcy proceeding once the plan has been confirmed. 11 U.S.C. § 1141(a). “Under this authority,” the court stated, “Penberthy's claims are barred. Chickering's debts to Penberthy under the Settlement Agreement, including both the $916,666.63 in outstanding principal and the $42,000 in unpaid health insurance, not only could have been, but actually were decided by the Bankruptcy Court in confirming the Plan.”

The court reached this conclusion in spite of the fact that it credited Penberthy's argument that a bankruptcy court is precluded from discharging a support obligation through discharge of that debt. As the court explained:

Section 1141(d)(2) does indeed provide that confirmation of a plan 'does not discharge an individual debtor from any debt exempted from discharge under section 523 of this title.' Therefore, had the Plan purported to discharge support payments covered under § 523, it would indeed likely have been powerless to do so, because such payments are non-dischargeable. But that is not the basis of Chickering's claim of res judicata. His claim is that the Plan determined, conclusively, as a factual matter, that the debts owed by Chickering to Penberthy were not of the sort covered by § 523, and therefore were dischargeable (and ultimately discharged) non-priority debts. Put differently, the preclusive effect of the Confirmed Plan follows from its factual classification of the debts as of a non-support, non-priority nature, not from an errant legal conclusion (for it made none) that support payments covered by § 523 are legally dischargeable.

On Chickering's judicial estoppel argument, the court pointed to the U.S. Court of Appeals for the Second Circuit's explanation in DeRosa v. Nat'l Envelope Corp. , 595 F.3d 99, 103 (2d Cir. 2010), of the factors necessary for invoking that doctrine. They are: 1) that the party against whom the doctrine is invoked took a different position on an issue in an earlier proceeding; 2) that this position was adopted by the court in that earlier proceeding; and 3) that the party asserting the right to argue a different position now would derive an unfair advantage over the party seeking estoppel if allowed to do so in the current proceeding. The court found all three elements present in the Chickering/Penberthy dispute before it.

Penberthy did attempt to overcome the court's conclusion by pointing to the case of In re Talsma, 496 B.R. 828 (Bankr. N.D. Tex. 2013), in which the bankruptcy court held that a former wife's vote in favor of a bankruptcy plan that partially disallowed her support claim should not be construed as a vote in favor of discharging all of that claim; instead, her acceptance should be treated as a vote for the dischargable portion of her claim to be paid under the plan, while she maintained her rights as to the nondischargable portion

Using this interpretation of the creditor/wife's actions, the Talsma court found that the wife's vote for the discharge plan was not “plainly inconsistent” with her insistence that her right to receive support survived the bankruptcy. But the court declared Talsma “inapposite” to the Chickering/Penberthy case, as there was no way to explain Penberthy's acceptance of the discharge plan in any way other than that she had completely accepted it. After all, unlike in Talsma, no portion of Penberthy's support claim had been deemed nondischargable.

Having found for Chickering on his first two arguments, the court declined to reach the final one. It therefore granted Chickering's motion for judgment on the pleadings and ordered the case closed.

Seventeen Is Old Enough

A Bronx, NY, court has declared that a 17-year-old child is old enough to determine his own visitation schedule with his mother. A.A. v. E.R., V-03243-13/13A (April 5); N.Y.L.J. Pg. p.17, col.3 Vol. 257 No. 82.

Both parents filed modification petitions seeking to change the custody and visitation arrangements for their two children, ages 12 and 17. The father already held sole legal and physical custody of both children, but he wanted to discontinue their mid-week visitations with their mother because, he claimed, she continually violated the visitation order by keeping the children too long. The mother sought legal custody, while the attorney for the children asked that they be permitted to set their own visitation schedules. The court found it was not in the children's best interests to alter legal and physical custody, but that modification of visitation was warranted. The younger child was deemed too young to set a visitation schedule, but the court held that the 17-year-old could determine for himself just how much visitation he would have with his mother.