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In re Verdini

April 7, 2006

IN RE: ANTHONY L. VERDINI
ANTHONY L. VERDINI, APPELLEE
v.
SUSAN POIRER, APPELLANT



The opinion of the court was delivered by: Sylvia H. Rambo United States District Judge

(BK. No. 1:05-BK-00806)

MEMORANDUM

Before the court is an appeal from an order of the Bankruptcy Court for the Middle District of Pennsylvania. The parties have briefed the issues, and the matter is ripe for disposition. For the reasons that follow, the court will affirm the order of the bankruptcy court.

I. Background

The facts are well known to the parties, thus the court will briefly discuss the facts pertinent to the disposition of this appeal. Appellee and Appellant were married in 1981 and divorced in 1998. The parties' divorce decree incorporated a marriage settlement agreement that enumerated the disposition of assets and liabilities. At issue in the instant case are two requirements of the marriage settlement agreement: Section 22 classified as "Cash Payments," requiring Appellee to make monthly payments to Appellant in the amount of 4,583.34 dollars for 120 months or until Appellant's death and Section 23 classified as "Alimony," requiring Appellee to make payments to Appellant in the amount of 4,583.34 dollars for 120 months or until Appellant's death. During the course of their marriage the parties formed at least three corporations. As part of the marriage settlement agreement, Appellee transferred interest in one corporation to Appellant and retained interest in the two remaining corporations. The cash payments and alimony provisions were designed to compensate Appellant for her remaining interest in those two corporations.

Between March 1998 and January 2000, Appellant received monthly checks from Appellee satisfying the financial obligation under both the cash payment and alimony provisions of the marriage settlement agreement. However, at some point in late 1998 or early 1999, Appellee began to experience certain business difficulties. Since January 2000, Appellee has not met his financial obligation to Appellant under the marriage settlement agreement.

Appellant has not remarried and has no children. Appellee has remarried and has two dependant children. As of 2005, Appellee's monthly income was 5,226.41 dollars and his monthly expenses were 5,142.00 dollars. Appellant's annual and monthly incomes have not been placed into evidence.

Appellee initiated Chapter 11 bankruptcy proceedings asserting that both the cash payment and alimony obligations of the marriage settlement agreement should be dischargeable. On December 2, 2005, after a trial before the bankruptcy court, judgment was entered in favor of Appellee. Specifically, the bankruptcy court found that Appellee's cash payments were dischargeable under 11 U.S.C. § 523(a)(15) and that the alimony obligation was dischargeable under 11 U.S.C. § 523(a)(5). Appellant appeals both findings.

II. Legal Standard

District courts have appellate jurisdiction over final judgments, orders, and decrees of the bankruptcy court. 28 U.S.C. § 158(a)(1). When reviewing the bankruptcy court's factual determinations, the district court will not disturb such findings unless it finds that the bankruptcy court committed clear error. In re Fegley, 118 F.3d 979, 982 (3d Cir. 1997). The district court, however, reviews the bankruptcy court's legal decisions de novo, In re Siciliano, 13 F.3d 748, 750 (3d Cir. 1994), and "its exercises of discretion for abuse thereof." In re Professional Ins. Management, 285 F.3d 268, 282-83 (3d Cir. 2002) (citing In re Engel, 124 F.3d 567, 571 (3d Cir. 1997)).

III. Discussion

Appellant raises four arguments: 1) the bankruptcy court erred when it refused to apply quasi-estoppel to Appellee's claim that his payments labeled alimony were intended to be payments other than alimony; 2) the bankruptcy court erred in its application of the law to the facts; 3) the bankruptcy court erred in its application of case law; and 4) the bankruptcy court erred in finding that the cash payment obligation of the marriage settlement agreement was dischargeable. After setting forth the relevant statutory provisions and applicable case law, the court will examine each of Appellant's arguments in turn.

Appellant's first three arguments relate solely to the alimony payments, while her fourth argument relates to the alimony and cash payments. With respect to the alimony provision, 11 U.S.C. § 523(a)(5) is the relevant statute. Section 523(a)(5) provides that a debtor is not discharged from 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, divorce decree or other order of a court of record, determination made in accordance with State or territorial law by a governmental unit, or property settlement agreement, but not to the extent that--

(B) such debt includes a liability designated as alimony, maintenance, or support, unless such debt is actually in the nature of alimony, maintenance, or support. 11 U.S.C. § 523(a)(5).

Thus, under § 523(a)(5) obligations that are in the nature of support are non-dischargeable; however, obligations that are labeled alimony, but are not in the nature of support may be dischargeable. Courts must look "beyond the label attached to an obligation by a settlement agreement to examine its true nature." In re Gianakas, 917 F.2d 759, 762 (3d Cir. 1990).

As provided by Gianakas: "[W]hether an obligation is in the nature of alimony, maintenance or support, as distinguished from a property settlement, depends on a finding as to the intent of the parties at the time of the settlement agreement." Id. In order to determine the parties' intent Gianakas identified three factors to be examined by the trial court: (1) "the language and substance of the agreement in the context of surrounding circumstances, using extrinsic evidence if necessary"; (2) "the parties' financial circumstances at the time of the settlement"; and (3) "the function served by the obligation at the time of the divorce or settlement." Id.

With respect to the cash payments provision of the marriage settlement agreement, 11 U.S.C. ยง523(a)(15) is the controlling ...


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