Eden, Larry v. Chapski, Robert A. ( 2005 )

In the
United States Court of Appeals
For the Seventh Circuit
____________
No. 04-2247
LARRY EDEN,
Plaintiff-Appellant,
v.
ROBERT A. CHAPSKI, LTD., and
JEAN EDEN n/k/a JEAN EAKINS,
Defendants-Appellees.
____________
Appeal from the United States District Court for
the Northern District of Illinois, Eastern Division.
No. 03 C 9033—James F. Holderman, Judge.
____________
ARGUED OCTOBER 26, 2004—DECIDED APRIL 22, 2005
____________
Before EASTERBROOK, ROVNER, and SYKES, Circuit Judges.
ROVNER, Circuit Judge. When an Illinois court dissolved
the marriage between Larry Eden and his wife, Jean Eakins,
it ordered Eden to compensate Eakins and her legal coun-
sel, Robert A. Chapski, Ltd. (“Chapski”), for the attorney’s
fees she had incurred in the divorce proceeding. The state
court later determined that this debt was not dischargeable
in bankruptcy pursuant to 11 U.S.C. § 523(a)(5) and
therefore survived Eden’s Chapter 13 bankruptcy. That
2 No. 04-2247
ruling prompted Eden to initiate an adversary proceeding
contending that the bankruptcy court had reserved to itself
exclusive jurisdiction over the dischargeability of the debt.
The bankruptcy court rejected that contention and dis-
missed Eden’s adversary complaint; and the district court
affirmed. We likewise affirm.
I.
The divorce action between Eden and Eakins commenced
in 1994, and that action was pending in the Circuit Court
of Kane County, Illinois (the “Kane County court,” or the
“state court”) when Eden filed for bankruptcy protection
pursuant to Chapter 13 of the U.S. Bankruptcy Code on
February 20, 1996. A list of unsecured creditors that Eden
filed in the bankruptcy proceeding identified Chapski as the
holder of a disputed claim for attorney’s fees against Eden’s
bankruptcy estate. On August 2, 1996, the bankruptcy court
confirmed a plan requiring Eden to make monthly pay-
ments of $1,088 for a period of 60 months toward the
satisfaction of his outstanding debts.
One year later, on August 6, 1997, the Kane County court
entered a judgment of dissolution terminating the marriage
between Eden and Eakins. Among other provisions, the
judgment required Eden to pay attorney’s fees of $17,500 to
Eakins and Chapski jointly. When Eden appealed that
judgment to the Illinois Appellate Court, the Kane County
court entered an order directing Eden to compensate Eakins
in advance for the additional attorney’s fees she would incur
in defending the appeal. After Eden failed to comply with
this prospective fee order, the Kane County court on
December 18, 1997, ordered him to show cause why he
should not be held in contempt of court. The court entered
a second rule to show cause nine months later, on Septem-
ber 22, 1998, after Eden also failed to pay other amounts
due pursuant to the judgment of dissolution. On October 5,
No. 04-2247 3
1998, Chapski filed a petition with the Kane County court
seeking compensation for the $8,964.24 that Eakins had
accrued in the appeal from the judgment of dissolution.
Shortly thereafter, the court held Eden in indirect civil
contempt for his failure to comply with the prospective fee
order.
Eden repaired to bankruptcy court, filing both a motion
to enforce the automatic stay as well as a verified complaint
for an injunction against Chapski and an emergency motion
asking the bankruptcy court to forbid Chapski from making
any efforts to enforce the fee orders entered by the state
court. Eden’s complaint alleged that his wages as an air
traffic controller were the only source of income to fund his
Chapter 13 plan, and that he could not satisfy his obliga-
tions under that plan and pay the attorney’s fees awarded by
the state court at the same time. Eden also pointed out that
if he were jailed pursuant to the Kane County court’s
contempt finding, he would be unable to continue making
the payments required by the Chapter 13 plan. Eden’s
complaint therefore asked the bankruptcy court to enjoin
Chapski from prosecuting the contempt proceedings against
Eden; he also asked that in the event the bankruptcy court
allowed any portion of Chapski’s claim for attorney’s fees
(pre- or post-petition) and/or determined that the claim was
not subject to the automatic stay, Eden be permitted to
amend his Chapter 13 plan to incorporate Chapski’s claim.
On December 8, 1998, the state court entered an agreed
order staying execution of any sentence on the finding of
indirect civil contempt pending the bankruptcy court’s
resolution of Eden’s requests for relief (hereinafter, the
“agreed order”). Pursuant to that order, Eden was to deposit
funds into a trust account in order to comply with the
prospective fee order.
On July 29, 1999, Bankruptcy Judge Ginsberg entered a
brief order (which we shall refer to as the “July 29 order”)
4 No. 04-2247
addressing Eden’s obligations to Chapski pursuant to the
state court’s orders. The July 29 order provided as follows:
(1) Any allowed pre-petition claim by Chapski against Eden
could be paid only pursuant to the confirmed Chapter 13
plan, and any other attempt to collect on that pre-petition
debt was subject to the automatic stay; (2) any post-petition
debt to Chapski was not dischargeable in Eden’s Chapter 13
bankruptcy; (3) any effort to collect on Eden’s pre- or post-
petition debt to Chapski was subject to 11 U.S.C. § 1306(a)
(identifying items that constitute property of the estate),
and because Eden’s wages were property of the estate, they
were subject to the automatic stay unless the court modified
the stay on notice and motion; and (4) “this Court will not
make a finding that [Eden’s pre-petition debt to Chapski] is
determined to be non-dischargeable unless Chapski prevails
in an adversary proceeding regarding that issue.”
In response to the July 29 order, Chapski and Eakins
moved in the bankruptcy court to modify the automatic
stay, so that they could make efforts to collect on Eden’s
debt for the attorney’s fees. The bankruptcy court did not
reach that motion until after Eden had been discharged
from bankruptcy on October 25, 2002; in view of the dis-
charge, the court denied the motion as moot. While the
bankruptcy remained pending, neither Chapski nor Eakins
initiated an adversary proceeding in order to determine
whether Eden’s pre-petition debt was non-dischargeable in
bankruptcy.
On November 26, 2002, one month after Eden was dis-
charged from bankruptcy, Judge Ginsberg entered an order
disposing of the adversary proceeding Eden had initiated
four years earlier with his complaint for injunctive relief
(hereinafter, the “November 26 order”). Pursuant to that
complaint, Eden in 1999 had filed a motion seeking a
turnover of the funds he had paid into a trust account
pursuant to the agreed order in state court. Eden argued
that these funds, intended to compensate Eakins for her
No. 04-2247 5
fees in the appeal of the dissolution order, were property of
the estate and, as such, were subject to the automatic stay.
Judge Ginsberg rejected that argument, noting that Eden
had presented no evidence that the funds he had tendered
pursuant to the agreed order derived from his wages and
were necessary to meet his obligations under the Chapter
13 plan. See In re Heath, 115 F.3d 521, 524 (7th Cir. 1997)
(Chapter 13 plan, on confirmation, returns to control of the
debtor property which is not necessary to fulfill his obliga-
tions under the plan). The judge therefore denied Eden’s
turnover motion and dismissed the adversary proceeding.
Eden took an appeal to the district court, but Judge Aspen
affirmed Judge Ginsberg’s decision. In re Eden, No. 03 C
116, 2003 WL 21147830 (N.D. Ill. May 14, 2003) (“Eden I”).
In the course of his November 26 decision, Judge Ginsberg
took the opportunity to note that his July 29 order was
meant to resolve all of the issues related to the automatic
stay that had been properly noticed and presented. Novem-
ber 26 order at 10. He went on to observe that the
dischargeability of the attorney’s fees owed to Chapski and
Eakins was not one of those issues: “[B]ecause Chapski and
[Eakins] did not file a complaint to determine the dis-
chargeability of the Debtor’s obligations under the
Judgment of Dissolution, . . . questions of dischargeability
are not before this Court.” Id. at 11.
On July 9, 2003, the Kane County court conducted a
hearing to determine whether Eden’s pre-petition debt to
Chapski was dischargeable in bankruptcy. Soon after that
hearing, the court held that Eden’s pre-petition obligation
to Chapski for attorney’s fees was a debt in the nature of
alimony, maintenance, or support, and as such was not dis-
chargeable pursuant to 11 U.S.C. § 523(a)(5). The debt had
therefore survived Eden’s discharge from Chapter 13
bankruptcy.
The state court litigation as to the non-dischargeability of
the attorney’s fees prompted Eden to commence an ad-
6 No. 04-2247
versary proceeding against Chapski and Eakins in bank-
ruptcy court. His amended complaint in that proceeding
requested, among other relief, an order staying any further
efforts to collect on Eden’s debt to Chapski for Eakins’
attorney’s fees. Eden alleged that pursuant to the bank-
ruptcy court’s July 29 order, Chapski was to initiate an
adversary proceeding if he wanted the pre-petition debt
declared non-dischargeable. Because Chapski had never
taken that step, Eden asserted that he was absolved of any
liability for the pre-petition portion of the debt when he was
discharged from bankruptcy in 2002. Chapski and Eakins
moved to dismiss the amended complaint, noting among
other things that the dischargeability of the pre-petition
debt had just been litigated in state court. In reply, Eden
acknowledged that the Kane county court (which by this
time had ruled) had found the debt to be non-dischargeable,
but Eden insisted that Judge Ginsberg’s July 29 order had
required the parties to resolve that issue in the bankruptcy
court and no other forum.
Bankruptcy Judge Barbosa, who had succeeded Judge
Ginsberg as the assigned judge, granted the motion to
dismiss, rejecting Eden’s construction of the July 29 order.
Judge Barbosa believed it important to view the July 29
order in context. The July 29 order was entered almost
three years after Eden’s Chapter 13 plan was confirmed and
while the bankruptcy case remained pending. At that point
in time, any resolution of Chapski’s claim for fees would, as
a practical matter, have to have been resolved within the
confines of the bankruptcy case given that Eden’s wages
were being used to fund the Chapter 13 plan and to that
extent were property of the bankruptcy estate. Thus, when
Judge Ginsberg provided in the July 29 order that Chapski
would have to commence an adversary proceeding if he
wished to have Eden’s debt to him declared non-
dischargeable, he was simply recognizing the reality of the
pending bankruptcy and the need to protect the property of
No. 04-2247 7
the estate. But it was by no means Judge Ginsberg’s intent
to say that if Chapski did not litigate the dischargeability
question in bankruptcy court, the debt would be discharged
upon Eden’s exit from bankruptcy. Chapski had opted to
wait until Eden was discharged from bankruptcy and to
raise the issue with the Kane County court, which enjoyed
concurrent jurisdiction over questions of dischargeability. In
Judge Barbosa’s view, nothing in the July 29 order pre-
cluded Chapski from following that course of action.
Eden appealed, and the district court affirmed the dis-
missal. Judge Holderman reasoned that even assuming the
bankruptcy court had the power to reserve jurisdiction to
itself to assess the dischargeability of a debt, it was unrea-
sonable to construe the July 29 order as divesting the state
court of its concurrent jurisdiction to make that determina-
tion. The court also rejected Eden’s alternative argument
that the state court’s finding of non-dischargeability was
invalid because, according to Eden, the entire divorce trial
in state court had taken place in violation of the automatic
stay, rendering the judgment that compelled Eden to pay
Eakins’ attorney’s fees invalid. The court was willing to
assume that the divorce trial had taken place during the
bankruptcy, while the automatic stay was in place. None-
theless, the state court had found Eden’s debt to be non-
dischargeable, and the district court concluded that the
finding of non-dischargeability exempted the litigation
underlying the debt from the automatic stay. In re Eden,
No. 03 C 9033, 2004 WL 793554 (N.D. Ill. Apr. 13, 2004)
(“Eden II”).
II.
As the district court did, we begin our analysis by noting
the points that are not disputed by the parties. First, there
is no dispute that, with certain exceptions not relevant here,
state courts have concurrent jurisdiction with the bank-
8 No. 04-2247
ruptcy courts to determine whether or not a debt is dis-
chargeable in bankruptcy pursuant to 11 U.S.C. § 523(a).
See, e.g., Rein v. Providian Fin. Corp., 270 F.3d 895, 904
n.15 (9th Cir. 2001); Cummings v. Cummings, 244 F.3d
1263, 1267 (11th Cir. 2001). Second, there is no question
that the Illinois court evaluated the dischargeability of
Eden’s pre-petition obligation to pay Eakins’ attorney’s fees
and decided that because the debt was in the nature of
alimony, maintenance, or support the debt was not
dischargeable—and not discharged—in Eden’s bankruptcy.
See 11 U.S.C. § 523(a)(5)1; see also, e.g., In re Maddigan,
312 F.3d 589, 595 (2d Cir. 2002) (“Courts are in general
agreement that obligations in the nature of alimony, main-
tenance and support may include the duty to pay attorneys’
fees incurred by the former spouse in connection with a
divorce proceeding, the obtaining and enforcement of ali-
mony and/or support awards, or for custody disputes.”)
(quoting In re Peters, 133 B.R. 291, 295 (S.D.N.Y. 1991),
aff’d, 964 F.2d 166 (2d Cir. 1992) (per curiam)); In re Rios,
901 F.2d 71, 72 (7th Cir. 1990) (per curiam) (citing, inter
alia, In re Spong, 661 F.2d 6 (2d Cir. 1981)). Nor is there
any dispute that the bankruptcy court itself never rendered
a ruling as to the dischargeability of this pre-petition debt.2
Finally, no party disputes the proposition that a creditor
1
Section 523(a)(5) provides that a debtor’s discharge from bank-
ruptcy does not discharge him from liability on a 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 separ-
ation agreement, divorce decree or other order of a court of
record . . . .” This court has previously noted that “[t]he unques-
tionable purpose of § 523(a)(5) is to ensure that spouses, former
spouses, and children receive support even though a support
provider has declared bankruptcy.” In re Platter, 140 F.3d 676,
683 (7th Cir. 1998).
2
Recall that in the July 29 order, Judge Ginsberg held that the
post-petition portion of Eden’s debt was not dischargeable in
bankruptcy.
No. 04-2247 9
can wait until after the debtor has been discharged from
bankruptcy to litigate the dischargeability of the debt owed
to the creditor, as Eakins and Chapski did here. See Eden
II, 2004 WL 793554, at *4, citing Ginsberg & Martin on
Bankruptcy ¶ 11.7[A][2].
Eden’s primary argument is that when Judge Ginsberg
stated in his July 29, 1999 order that he would not hold
Eden’s debt to Chapski (and Eakins) non-dischargeable un-
less and until Chapski prevailed in an adversary proceeding
on that question, he was compelling the parties to litigate
that question in bankruptcy court and effectively divesting
the state courts of their concurrent jurisdiction to determine
whether or not the debt was dischargeable (and discharged)
in bankruptcy.
Like the courts below, we find that construction of the
July 29 order to be implausible. Setting aside the question
of whether a bankruptcy court could prospectively deprive
state courts of their concurrent jurisdiction to decide dis-
chargeability questions, cf. Atlantic Coast Line R.R. Co. v.
Brotherhood of Locomotive Engineers, 398 U.S. 281, 295, 90
S. Ct. 1739, 1747 (1970) (“In short, the state and federal
courts had concurrent jurisdiction in this case, and neither
court was free to prevent either party from simultaneously
pursuing claims in both courts.”), nothing in the court’s July
29 order suggests an intent by the bankruptcy judge to
assert exclusive jurisdiction as to the dischargeability of the
fees that Eden had been ordered to pay Eakins and her
attorney. The bankruptcy court said only that it would not
deem the debt non-dischargeable unless Chapski prevailed
in an adversary proceeding. The court’s statement is most
naturally construed as a signal that if Chapski wanted the
bankruptcy court to rule on the question, he would have to
commence an adversary proceeding; the ball, in other words,
was in Chapski’s court. There was no mention of the state
courts’ concurrent jurisdiction on that subject, no language
suggesting that Chapski was obligated to raise the issue
10 No. 04-2247
with the bankruptcy court, and no signal that whether or
not Chapski did so, the state courts were barred from
exercising their concurrent jurisdiction to evaluate the dis-
chargeability of the debt.
The order that Judge Ginsberg subsequently entered on
November 26, 2002 notes that the July 29 order was meant
to resolve all issues that the parties had properly noticed
and presented. If the face of the July 29 order itself does not
make plain enough that the dischargeability of Eden’s pre-
petition debt for attorney’s fees was not one of those issues,
the November 26 order eliminates any doubt on that score
with its observation that “questions of dischargeability are
not before this court.” November 26 order at 11. As with the
earlier order, the November 26 order in no way suggests
that the parties were precluded from raising that subject in
state court.
Eden’s fall-back argument is that the divorce trial in state
court that culminated in the judgment of dissolution and
the proviso that Eden pay the attorney’s fees took place in
violation of the automatic stay, see 11 U.S.C. § 362(a), so
that the debt to Chapski and Eakins was void from the
outset. See, e.g., Middle Tenn. News Co. v. Charnel of
Cincinnati, Inc., 250 F.3d 1077, 1082 (7th Cir. 2001)
(“Actions taken in violation of an automatic stay ordinarily
are void.”). But this argument is a non-starter. The Bank-
ruptcy Code expressly exempts from the automatic stay “the
commencement or continuation of an action or proceeding
for . . . the establishment or modification of an order for
alimony, maintenance, or support[.]” 11 U.S.C.
§ 362(b)(2)(A)(ii). In view of that exemption, the pertinent
question here is whether or not the divorce trial, to the
extent it took place while the automatic stay was in place,
qualified as a proceeding to establish an order for alimony,
maintenance, or support. That question can be answered by
looking to the judgment of dissolution and the nature of the
obligations that it imposed. Among those obligations,
No. 04-2247 11
obviously, was the burden placed on Eden to pay Eakins’
attorneys fees. The Kane County court ultimately deter-
mined that the attorney-fee obligation was a debt in the
nature of alimony, maintenance or support, and as such
was a non-dischargeable debt pursuant to section 523(a)(5)
of the Code. That determination in turn makes clear that
the divorce proceeding that resulted in that obligation was,
in relevant part, a proceeding to establish an order for
alimony, maintenance, or support. As such, it was exempt
from the automatic stay. See, e.g., In re Gianakas, 917 F.2d
759, 764 (3d Cir. 1990) (once a court finds a debt to be in
“the nature of alimony, maintenance or support . . . [i]t
follows that the debt was not dischargeable and was unaf-
fected by the automatic stay”).3 Of course, any effort to
enforce the judgment of dissolution was subject to the auto-
matic stay (unless and until the stay was modified by the
bankruptcy court) insofar as Chapski and/or Eakins sought
to collect from resources that were property of the bank-
ruptcy estate. § 362(b)(2)(B); see Heath, 115 F.3d at 524.
But as the lower courts found in ruling against Eden on his
motion for turnover of funds, there is no evidence that this
is what occurred here. See Eden I, 2003 WL 21147830.
III.
The Kane County court had concurrent jurisdiction to
determine whether Eden’s debt for attorney’s fees was
dischargeable, and nothing in the bankruptcy court’s July
29 order precluded the state court from exercising its
3
To the extent that Eden would have us consider the validity of
other obligations imposed by the judgment of dissolution, or of the
overall judgment, we decline the invitation. The only obligation
imposed by the judgment of dissolution that Eden contests in this
appeal is his obligation to compensate Chapski and Eakins for her
attorney’s fees.
12 No. 04-2247
concurrent jurisdiction. Upon finding that this obligation
was in the nature of a debt for alimony, maintenance, or
support, the court determined that the debt was not
discharged upon Eden’s exit from Chapter 13 bankruptcy.
That finding in turn indicates that the divorce proceedings
underlying that obligation were, in relevant part, exempt
from the automatic stay. The debt is therefore valid. The
decision of the bankruptcy court to dismiss Eden’s adver-
sary complaint, and the district court’s decision to affirm
that dismissal, are AFFIRMED.
A true Copy:
Teste:
________________________________
Clerk of the United States Court of
Appeals for the Seventh Circuit
USCA-02-C-0072—4-22-05