Nancy J. Bogart v. William C. Bogart ( 1995 )

COURT OF APPEALS OF VIRGINIA
Present: Judges Elder, Fitzpatrick and Senior Judge Duff
Argued at Alexandria, Virginia
NANCY J. BOGART
OPINION BY
v. Record Nos. 0645-94-4 and 1020-94-4 JUDGE LARRY G. ELDER
NOVEMBER 28, 1995
WILLIAM C. BOGART
FROM THE CIRCUIT COURT OF FAIRFAX COUNTY
Thomas S. Kenny, Judge (Record No. 0645-94-4)
Jane Marum Roush, Judge (Record No. 1020-94-4)
Thomas P. Mains, Jr. (Mains & Mains, L.C., on
briefs), for appellant.
(Stephen G. Cochran; Cochran & Rathbun, P.C.,
on brief), for appellee.
Nancy J. Bogart (wife) appeals the trial court's order
incorporating the parties' property settlement agreement and
awarding William C. Bogart (husband) attorney's fees. Wife
contends (1) the trial court lacked jurisdiction to enter a final
equitable distribution decree on March 14, 1994, incorporating
terms of the parties' property settlement agreement, after a
federal bankruptcy court assumed jurisdiction over the matter and
declined to approve the agreement; and (2) the trial court
violated Rule 1:1 when, on May 20, 1994, it modified its
April 28, 1994 order more than twenty-one days after the order's
issuance. We hold the trial court had jurisdiction to enter its
March 14, 1994 final equitable distribution order. However,
because the trial court modified the order more than twenty-one
days after its entry, it lacked jurisdiction. We therefore
affirm the trial court's order in case number 0645-94-4 and
reverse the trial court's order in case number 1020-94-4.
I.
FACTS
Wife filed a bill of complaint for divorce on November 2,
1992, seeking a divorce from husband. The divorce was granted on
November 22, 1993. When the parties separated, they owned
several parcels of real estate as tenants by the entirety, each
one encumbered by a deed of trust or mortgage. Following the
parties' separation, husband stopped making mortgage payments on
the properties, and the creditors began foreclosure proceedings.
On May 27, 1993, seeking bankruptcy protection from the
creditors, wife filed a Chapter 11 petition with the United
States Bankruptcy Court for the Eastern District of Virginia, and
the bankruptcy court assumed jurisdiction over the matter.
Assumption of jurisdiction included an automatic stay over the
related state court proceedings, pursuant to 11 U.S.C. § 362(a).
On June 28, 1993, the parties executed a letter agreement
resolving issues of equitable distribution and spousal support.
Among the terms, wife agreed to transfer to husband her interests
in the jointly titled property and to relinquish any claims to
the property in exchange for husband's promise to assume
responsibility for the debts and to indemnify wife.
On November 5, 1993, the bankruptcy court lifted its
automatic stay and permitted the divorce suit "to proceed to its
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conclusion, in the state courts, with this [bankruptcy] court
retaining jurisdiction to determine the allowance of claims
against the estate of [wife] as the estate shall be constituted
pursuant to the Order of the State Courts." After receiving this
permission to litigate the equitable distribution dispute in
state court, wife requested the bankruptcy court to approve the
agreement, arguing that without such approval, it was a nullity.
On November 22, 1993, the bankruptcy court refused to approve
the agreement's terms, ruling that the agreement was "not in the
best interests of [wife] and her creditors."
On January 7, 1994, the parties appeared in the state trial
court to determine the equitable distribution issue. Wife
contended the bankruptcy court had already decided the issue of
the agreement's validity, retained jurisdiction over the issue,
and its decision as to the agreement's validity was final and
binding on all parties and state courts. The trial court ruled,
however, that the bankruptcy court's refusal to approve the
agreement did not mean the agreement was invalid, and it
scheduled an evidentiary hearing on the matter.
Before the trial court could rule on the matter, wife moved
for an injunction in the bankruptcy court, seeking to prevent
husband from proceeding with his request to approve the
settlement agreement. On January 18, 1994, the bankruptcy court
denied wife's request for an injunction. The bankruptcy court
commented that "I see no reason why the state court cannot make a
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determination as to coercion just as well as I can, and maybe
better . . . and, furthermore, as to equitable distribution."
On January 31, 1994, the trial court determined the
agreement was not the product of duress and incorporated the
agreement's terms in a March 14, 1994 order. On March 29, 1994,
the trial court denied wife's motion to vacate or reconsider the
order, despite her contention that the trial court lacked
jurisdiction to litigate the equitable distribution issue because
of the bankruptcy court's earlier refusal to validate the
parties' agreement.
On April 28, 1994, the trial court granted husband's
petition for enforcement of the order but denied his request for
attorney's fees. On May 20, 1994, the trial court modified its
April 28, 1994 order and awarded husband $1,000 in attorney's
fees.
II.
JURISDICTION
Wife argues that the trial court lacked jurisdiction to
adjudicate the issue whether the parties' property settlement
agreement was enforceable as the basis for equitable distribution
and that, therefore, this Court must vacate the trial court's
final order of March 14, 1994. We disagree.
Our analysis is guided by federal bankruptcy law.
When a bankruptcy petition is filed, most judicial
actions against the debtor commenced before the filing
of the petition are automatically stayed. See 11
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U.S.C. § 362(a)(1). The automatic stay gives the
bankruptcy court an opportunity to harmonize the
interests of both debtor and creditors while preserving
the debtor's assets for repayment and reorganization of
his or her obligations. According to section 362(d),
the bankruptcy court may lift the stay "for cause."
Because the [United States] Code provides no definition
of what constitutes "cause," courts must determine when
discretionary relief is appropriate on a case-by-case
basis. See In re MacDonald, 755 F.2d 715, 717 (9th
Cir. 1985); 2 Collier on Bankruptcy § 362.07[1], at
362-68 to 69. (15th ed. 1992).
In re Robbins, 964 F.2d 342, 345 (4th Cir. 1992); see In re
Wilson, 85 B.R. 722, 724 (Bankr. E.D. Pa. 1988).
Accordingly, when wife filed her bankruptcy petition on
May 27, 1993, she became a "debtor" under federal bankruptcy law.
The filing of her petition mandated that no state court
litigation concerning the parties' jointly held property could
proceed without the bankruptcy court lifting its automatic stay.
Wife requested the bankruptcy court to lift its automatic
stay, pursuant to 11 U.S.C. § 362(d), 1 which the bankruptcy court
did on November 5, 1993. 2 Armed with the bankruptcy court's
1
11 U.S.C. § 362(d)(1) provides in part:
On request of a party in interest and after notice and a
hearing, the court shall grant relief from the stay provided
under [11 U.S.C. § 362(a)], such as by terminating,
annulling, modifying, or conditioning the stay--
(1) for cause.
2
The bankruptcy court's order stated:
Upon consideration of the Motion of Nancy J. Bogart for
Relief from the Automatic Stay to permit litigation now
pending to go forward, namely, Chancery Case No. 127306,
Circuit Court, Fairfax County, Virginia, and by agreement of
William Bogart, through counsel, and for good cause shown,
it is by this Court
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express permission, the parties continued their litigation to
determine the equitable distribution matter in state trial court.
On November 22, 1993, the bankruptcy court issued another
order, presumably on wife's request, on the matter of the
parties' settlement agreement. The bankruptcy court denied
wife's application to approve the agreement, stating it was not
in the best interest of wife and her creditors. Despite the
bankruptcy court's November 22, 1993 order and wife's
protestations that the trial court lacked jurisdiction to approve
the agreement, an equitable distribution hearing was scheduled.
The trial court reasoned that the bankruptcy court order did not
per se invalidate the agreement and that it would examine the
agreement to see if wife signed it under duress or coercion, as
she alleged.
While the bankruptcy court's November 22, 1993 order
declining to approve the agreement may appear to have stripped
the state trial court of jurisdiction over the matter, its
lifting of the automatic stay and a January 18, 1994 hearing on
wife's motion to enjoin the state proceedings reveal otherwise.
First, as discussed above, the bankruptcy court's November 5,
ORDERED that the automatic stay imposed by 11 U.S.C.
sec. 362 be, and the same hereby is, vacated and
extinguished with respect to the said above-identified
litigation and said litigation shall be permitted to proceed
to its conclusion, in the State Courts, with this Court
retaining jurisdiction to determine the allowance of claims
against the estate of Nancy J. Bogart as that estate shall
be constituted pursuant to the Order of the State Courts.
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1993 order lifted the automatic stay to allow all state court
proceedings to continue. The bankruptcy court retained
jurisdiction only over the allowance of claims against wife's
estate, "as that estate shall be constituted pursuant to the
Order of the State Courts." Furthermore, the bankruptcy court
unequivocally stated on January 18, 1994, during the hearing of
wife's request for injunction:
I see no reason why the state court cannot make a
determination as to coercion just as well as I can, and
maybe better, since they deal with many more divorce
cases, for which I am grateful, than I do, and
furthermore, as to equitable distribution. So I want
to advise you at this time that I'm denying your motion
for an injunction.
(Emphasis added).
The trial court concluded that the agreement was enforceable
and issued a final order on March 14, 1994, incorporating the
terms of the agreement into the final decree of equitable
distribution. On March 29, 1994, the trial court declined to
reconsider its ruling. In fact, the trial court observed that
[i]n accordance with state law . . . the agreement
could and should be given effect unless procured by
fraud or duress. I found no such fraud or duress
. . . . [The bankruptcy court] and I are each
applying the law of our own courts to the same
document, and it is entirely possible to come out with
opposite results.
We see no error in these proceedings.
Wife also asserts even if the bankruptcy court chose to
allow the state trial court to decide the matters of the
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agreement's validity and equitable distribution, it lacked
authority to do so. We reject this argument. As one bankruptcy
court noted, "[i]t is appropriate for bankruptcy courts to avoid
incursions into family law matters 'out of consideration of court
economy, judicial restraint, and deference to our state court
brethren and their established expertise in such matters.'"
Wilson, 85 B.R. at 727 (quoting MacDonald, 755 F.2d at 717); see
Robbins, 964 F.2d at 344-45.
Under these principles, bankruptcy courts give state courts
the right to determine and divide marital property, even after
bankruptcy courts assume jurisdiction over a case. "In the
normal case, the state court therefore defines what the debtor's
rights are in the marital property and then the bankruptcy court
exercises exclusive jurisdiction over the debtor's property which
has become property of the bankruptcy estate." Hohenberg v.
Hohenberg, 143 B.R. 480, 485 (Bankr. W.D. Tenn. 1992). As
another bankruptcy court noted, "'[a] property settlement
involves an inquiry into factors regularly considered by state
courts in divorce proceedings, an inquiry which I would find is
best left to the state courts.'" Robbins, 964 F.2d at 346
(quoting In re Heslar, 16 B.R. 329, 333 (Bankr. W.D. Mich.
1981)).
Although wife relies on Hohenberg to support her position,
we interpret that decision differently. In Hohenberg, when
lifting the stay to allow the divorce proceedings to proceed, the
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bankruptcy court specifically retained "exclusive jurisdiction"
over "entry of any consensual property settlement agreement." In
the case before us, the bankruptcy court did not make such a
reservation when initially lifting the stay. In fact, the
bankruptcy court refused to enjoin the state court proceedings
regarding the agreement after ruling it would not approve the
agreement's terms. Nevertheless, the Hohenberg court explained:
[t]o the extent that the state matrimonial court
adjudicates an equitable distribution in favor of the
nondebtor spouse, such award becomes a claim within the
context of 11 U.S.C. § 101[(5)]. The nondebtor
spouse's claim is an entitlement against the debtor's
estate, and thus [the nondebtor spouse] becomes one of
the general unsecured creditors of the estate.
Hohenberg, 143 B.R. at 488 (citation omitted). In this case, the
record reveals that the claims involved creditors secured by the
real estate and accommodated in the parties' agreement.
Finally, one scholar commented:
In particular, a large majority of bankruptcy courts
are willing to lift the stay to the extent of
permitting the state court to determine the property
rights of the debtor's spouse. This permits the
equitable distribution proceedings to continue, subject
of course to the exclusive authority of the bankruptcy
court to determine the priority of the spouse's rights
as against those of the other creditors.
Brett R. Turner, Equitable Distribution of Property § 3.06 at 66
(2d ed. 1994)(footnote omitted)(emphasis added).
We therefore hold that the trial court had jurisdiction to
make its final determination of whether the agreement was
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enforceable and to fashion its equitable distribution order.
III.
RULE 1:1
In this case, the trial court entered a final order on April
28, 1994, including an order denying husband attorney's fees.
Husband filed a motion for reconsideration. On May 5, 1994, the
trial court addressed a letter to counsel, explaining that
husband's motion to reconsider was granted and that husband "will
be awarded attorney's fees in the amount of one thousand dollars
($1,000.00), to be paid within thirty days of the date of this
letter." The trial court requested husband to prepare an order
based on the May 5, 1994 letter "for entry within ten days." The
trial court's final order awarding attorney's fees was entered on
May 20, 1994, twenty-two days after the original order.
Rule 1:1, a mandatory rule, states "[a]ll final judgments,
orders, and decrees, irrespective of terms of court, shall remain
under the control of the trial court and subject to be modified,
vacated, or suspended for twenty-one days after the date of
entry, and no longer." (Emphasis added). See Rook v. Rook, 233
Va. 92, 94-95, 353 S.E.2d 756, 758 (1987). "At the expiration of
that 21-day period, the trial court loses jurisdiction to disturb
a final judgment, order, or decree except for the limited
authority conferred by Code § 8.01-428." School Board v. Caudill
Rowlett Scott, Inc., 237 Va. 550, 554, 379 S.E.2d 319, 321
(1989).
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In this case, no exceptions to the twenty-one day rule
applied. The trial court's May 5, 1994 letter to counsel did not
act as an official court order that was entered within the
twenty-one day period. See D'Alessandro v. Commonwealth, 15 Va.
App. 163, 167, 423 S.E.2d 199, 201 (1992)(stating there must be
an "entry, within the 21-day period after final judgment, of an
order" vacating the final order); In re Dept. of Corrections, 222
Va. 454, 463-65, 281 S.E.2d 857, 862-63 (1981). Nor was the
court's May 20, 1994 order merely an order that did not alter the
substantive provisions of a final judgment and that merely aided
in the execution of the final judgment. See Davidson v.
Commonwealth, 246 Va. 168, 171, 432 S.E.2d 178, 179-80 (1993).
Because the trial court lacked jurisdiction to enter its May 20,
1994 order, we vacate the order.
Accordingly, we affirm the trial court's March 14, 1994
equitable distribution order but reverse and vacate its May 20,
1994 order awarding husband attorney's fees.
Case No. 0645-94-4 affirmed.
Case No. 1020-94-4 reversed.
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