Petition for Writ of Certiorari — Sherman v. Sherman
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oui UM? UT 4ii, UD.
FILED
03 800 NOV 26 2003
No.
IN THE
Supreme Court of the Anited States
LAWRENCE SHERMAN,
Petitioner
V. |
LYNNE SHERMAN
Respondent
On Petition for Writ of Certiorari
To The Court of Appeals of Maryland
PETITION FOR WRIT OF CERTIORARI
JONATHAN S. GREENE
Counsel of Record
KRISTINE K. HOWANSKI
Howanski & Greene
401 Washington Ave.
Towson, MD 21204
410-296-8166
Questions Presented
I. Did the State Court err in disregarding the broad
discharge of bankruptcy claims recognized in Johnson v.
Home State Bank?
Il. Should state courts be allowed to disregard the broad.
discharge of bankruptcy claims recognized in Johnson v.
Home State Bank?
Meissen mh
TABLE OF AUTHORITIES
CASES
Choate v. Choate
97 Md. App. 347, 629 A.2d 1304 (1993) ........---- 12
Dexter v. Dexter
105 Md. App. 678, 661 A.2d 171 (1995),
cert. denied, 341 Md. 27, 668 A.2d 36 (1995) ..... 12,17
Farrey v. Sanderfoot
eee) 0) eo os >
Grady v. A.H. Robins Co.
839 F.2d 198 (4" Cir. 1988) .....--. eee ee eee eee: 16
In re Aslan
65 B.R. 826 (Bankr. C.D. Cal. 1986), rev ‘d on other
grounds, 909 F.2d 367 (9 Cir. 1990). .........: 9, 10, 19
In re Ter Bush
273 B.R. 625 (Bankr. S.D. Cal. 2002)........----- 10, 11
In re Udell
18 F.3d 403 (7 Cir. 1994) ......222- ee eeee: 12, 13, 19
In re Young
214 B.R. 905 (Bankr. D. Idaho 1997).......------ 10, 19
Johnson v. Home State Bank
501 U.S. 78 (1991) .........---- 5, 14, 15, 16, 17, 18, 19
Kennedy v. Medicap Pharmacies, Inc.
267 FS 495 16" Cit. 2OGT). gn. ccctccicnss '2, 13, 19
Keys v. Keys
93 Md. App. 677, 614 A.2d 975 (1992) ............. 12
Qhio v. Kovacs
GE a BPE As ov ceed ectasaves taut 7, 8, 9, 11
Paradiso v. Paradiso
88 Md. App. 343, 594 A.2d 1200 (1991), .
cert. denied, 325 Md. 95, 599 A.2d 447 (1991) ........ 12
Pennsylvania Dept. of Public Welfare v. Davenport
se ee er ee nn ena 16, 17
Roxse Homes, Inc. v. Roxse Homes Ltd. Partnership
83 B.R. 185 (D. Mass 1988), aff’g In re Roxse Homes, Inc.,
74 B.R. 810 (D. Mass 1987). ..... RPL NE ter he 8, 19
Stewart Foods, Inc. v. Broecker
GOW Dil 064 GR Cae, UO an hn koe cc ev ce cceniaas, 15
STATUTES
Pe Eres Se ORs cos ee l, 2. 5, 14, 15
OTHER MATERIALS
H.R. Rep. No. 95-595, 95" Cong., 1% Sess. 309 (1977),
reprinted in 1978 U.S.C.C.A.N. 5963, 6266 .......... 16
S. Rep. No. 95-989, 95" Cong., 2d Sess. 22 (1978),
reprinted in 1978 U.S.C.C.A.N. 5787, 5808 .......... 16
iV
OPINIONS BELOW
The Order of the Maryland Court of Appeals denying the
Petition for Writ of Certiorari is reported at 831 A.2d 5,
376 Md. 546 (2003) and is reproduced in the Appendix at
Al. The Order of the Maryland Court of Special Appeals
denying reconsideration is unreported and reproduced in the
Appendix at A2. The Opinion of the Maryland Court of
Special Appeals affirming the judgment below is
unreported (No. 1367, Sept. term 2001) and reproduced in
the Appendix at A3-A21. The Amended Order of the
Circuit Court for Harford County of August 3, 2001 is
unreported and reproduced in the Appendix at A22-A23.
The Opinion and Order of the Circuit Court for Harford
County of July 31, 2001 is unreported and reproduced in
the Appendix at A24-A43.
JURISDICTION
The Maryland Court of Appeals denied the Petition for
Writ of Certiorari by Order of August 28, 2003. The
jurisdiction of this Court is invoked under 28 U.S.C. §
1257(a).
STATUTORY PROVISIONS INVOLVED
11 U.S.C § 101(5) in pertinent part provides:
{C]laim means —
(A) right to payment, whether or not
such right is reduced to judgment,
liquidated, unliquidated, fixed, contingent,
matured, unmatured, disputed, undisputed,
legal, equitable, secured or unsecured; or
(B) right to an equitable remedy for
breach of performance if such breach gives
rise to a right to payment, whether or not
such right to an equitable remedy is reduced
to judgment, fixed, contingent, matured,
unmatured, disputed, undisputed, secured or
unsecured[.]
* STATEMENT OF THE CASE
A. The Parties, the Bankruptcy and the Divorce
Petitioner Lawrence R. Sherman and Respondent
Lynne P. Sherman were married to each other on July 5,
1975. During the course of the marriage, two children were
born to the parties, namely Angela Sherman and
Christopher Sherman, both of whom reached the age of 18
years and thus were emancipated prior to the
commencement of divorce proceedings. The parties
separated on or about December 28, 1998. The parties
entered into a Marital Settlement Agreement on June 30,
1999. Among other things, the agreement provided that
Mr. Sherman would take the following actions:
1) Transfer to Ms. Sherman his one-third
interest in a townhouse owned jointly with
Ms. Sherman and the parties’ daughter;
2) Transfer to Ms. Sherman his one-quarter
interest in the parties’ time share units
located in Pennsylvania and Florida;
3) Sign an MVA Gift Certification form and
transfer the title of a 1997 Lincoln Town Car
to Ms. Sherman.
4) Turn over certain personal property to Ms.
Sherman.
The Agreement also provided that the parties would
annually alternate usage of their jointly owned timeshare
unit in Cancun, Mexico.
The parties reached a disagreement over the
provisions of the agreement, and Ms. Sherman filed a
complaint seeking enforcement of the agreement just five
months after its execution, on December 6, 1999. After
some negotiation, the parties appeared before Judge
William O. Carr in the Circuit Court for Harford County,
Maryland on April 11, 2000, and they placed the terms for a
modification of the agreement on the record. Among the
modifications was a provision whereby the parties would
sell their Cancun timeshare unit and split the proceeds of
sale. The other modification of note was that Mr. Sherman
would evenly transfer his one-third interest in the Towson
townhouse to Ms. Sherman and the parties’ daughter so that
each of the recipients would own half of the property.
On October 12, 2000, Mr. Sherman filed a Chapter
13 petition for bankruptcy in the U.S. Bankruptcy Court for
the District of Maryland. The Circuit Court for Harford
County, Maryland stayed the domestic relations case
pending the bankruptcy action. Mr. Sherman’s Chapter 13
3
case was converted to a Chapter 7 case. Ms. Sherman and
her counsel received proper notice of the bankruptcy
proceedings, and they attended the meeting of creditors.
Ms. Sherman, however, never filed any objection to the
discharge of Mr. Sherman’s debts. Mr. Sherman was
granted a discharge by the bankruptcy court for all the
claims against him on April 3, 2001.
On June 25, 2001, the parties appeared before Judge
Maurice W. Baldwin, Jr., in the Circuit Court for Harford
County, Maryland, for the trial of the divorce. Counsel for
Petitioner argued that the property obligations of the
Petitioner were discharged in the bankruptcy action, thereby
raising the federal question in this case. At.the conclusion
of trial, Judge Baldwin directed counsel to submit
memoranda regarding the impact of the bankruptcy
discharge. Although he asked counsel to submit
memoranda on the issue, Judge Baldwin articulated at the
close of the hearing an inclination to require Mr. Sherman
to make certain property transfers. After reviewing the
attorneys’ memoranda, on July 31, 2001, Judge Baldwin
issued a Memorandum Opinion and Order and Judgment of
Absolute Divorce consistent with his statements from the
bench that set out particular obligations for each party from
the Marital Settlement Agreement and the modifications
made on the record made in April 2000. In particular,
Judge Baldwin found that certain obligations for transfer of
property_by Mr. Sherman were not discharged by the
bankruptcy court. Among other things, Judge Baldwin
ordered Mr. Sherman to transfer his interest in the
timeshares, the Towson townhouse, certain personal
property and the Lincoln automobile, and he ordered that
the Cancun timeshare be sold and the proceeds of sale
divided between the parties.
4
j
4
In reviewing the-federal law to determine whether
Mr. Sherman’s contractually agreed obligations should be
enforced or considered discharged by the bankruptcy
court, Judge Baldwin embraced the federal question before
this Court. (Appendix at XX) The judge correctly
identified the statute that governs the definition of a claim,
namely 11 U.S.C. § 101(5). The statute provides the
following:
[C]laim means —
(A) right to payment, whether or not
such right is reduced to judgment,
liquidated, unliquidated, fixed, contingent,
matured, unmatured, disputed, undisputed,
legal, equitable, secured or unsecured; or
(B) right to an equitable remedy for
breach of performance if such breach gives
rise to a right to payment, whether or not
such right to an equitable remedy is reduced
to judgment, fixed, contingent, matured,
unmatured, disputed, undisputed, secured
or unsecured[.]
In order to ascertain whether a particular legal obligation
meets the definition of “claim,” the reviewing court
engaged in “straightforward statutory construction to be
resolved by reference to ‘the text, history and purpose’ of
the Bankruptcy Code.” Johnson v. Home State Bank, 501
US. 78, 83 (1991), quoting Farrey v. Sanderfoot, 500 U.S.
291, 298 (1991).
Judge Baldwin attempted to engage in statutory
construction, but he based his decision on a
misinterpretation of the statute. In the Memorandum
i Me ee
Opinion, Judge Baldwin set forth the following explanation
for his order:
According to bankruptcy law, if a
claim means a “right to payment” as it is so
broadly defined by Congress, then it would
follow that any pre-petition claim that
Plaintiff has against Defendant which
requests monetary relief or could possibly
result in a claim for monetary payment(s) is
unenforceable at this point based on
Defendant’s discharge in bankruptcy.
Therefore this Court no longer has authority
to enforce any pre-bankruptcy obligations of
the Defendant which result in a monetary
award or payment to the Plaintiff. However,
any obligations of the Defendant to the
Plaintiff arising out of the Agreement and
subsequent stipulation on the record which
are solely equitable and do not foreseeably
result in a claim for monetary relief, are
valid and enforceable obligations. Thus, this
Court has the authority to compel specific
performance of certain outstanding property
settlement obligations remaining between
the parties.
According to the language contained in the Memorandum,
the trial judge read the bankruptcy statute’s definition of
claim to exclude legal obligations that are solely equitable
and that do not result in foreseeable claims for monetary
relief. The trial judge then classified certain property
settlement legal obligations as to be within this latter
category, disregarding whether the equitable claims could
eS aa eae eee
give rise to right of payment.
Judge Baldwin issued an Amended Order on August
3, 2001 in order to correct the spelling of Ms. Sherman’s
maiden name in the original order.
B. Appellate Court Proceedings
Petitioner appealed the orders of the Circuit Court
for Harford County to the Maryland Court of Special
Appeals. The parties filed briefs and appeared for oral
argument before Judges Andrew L. Sonner, James A.
Kenney III, and Lawrence F. Rodowsky (retired). The
Maryland Court of Special Appeais issued an Opinion in
the case on April 21, 2003, which affirmed the decision of
the Circuit Court for Harford County.
In writing the opinion for the Maryland Court of
Special Appeals, Judge Rodowsky struggled with the
congressional intent of the bankruptcy discharge statute,
relying on the case of Ohio v. Kovacs, 469 U.S. 274 (1985),
to shore up the argument that some circumstances must
exist where equitable claims do not give rise to right of
payment. In that case, a pollution cleanup order (an.
affirmative injunction) was construed as having been
“converted” into an obligation to pay money, insofar as the
polluter did not comply with the cleanup order and an
appointed receiver performed the tasks and sought
reimbursement. Judge Rodowsky proposed that the
affirmative injunction in Ohio v. Kovacs was not an order
for the payment of money, but the breach of that injunction
was “converted” into a separate damage remedy that was a
dischargeable claim. Judge Rodowsky did not comment
that this Court in Ohio v. Kovacs also noted that breach of
the injunction could have resulted in contempt or criminal
penalties. This Court’s decision therefore makes the
distinction between the remedy of specific performance for
the original environmentai wrongs (stage one relief) and the
remedies to be applied when specific performance does not
occur (stage two relief). This Court in Ohio v. Kovacs does
not address whether money damages could have been
sought as an alternative to the specific performance remedy
found in the initial affirmative injunction to clean up the
pollution (stage one relief). In the case of the Shermans,
the Petitioner’s obligations under the parties’ marital
settlement agreement could be satisfied either by money
damages or by specific performance. As a result,
Petitioner’s specific performance liability should have been
negated by his bankruptcy discharge.
Recognizing that Maryland law had not addressed
these issues previously, Judge Rodowsky also grappled
with conflicting opinions from other states that have
considered aspects of this case. But rather than focusing on
the laws of states such as Idaho, which most congruently
reflects the laws of Maryland, Judge Rodowsky looked to
the laws of states in which Maryland’s remedies are clearly
unavailable. Judge Rodowsky first considered Roxse
Homes, Inc. v. Roxse Homes Ltd. Partnership, 83 B.R. 185
(D. Mass 1988), aff’g In re Roxse Homes, Inc., 74 B.R. 810
(D. Mass 1987). The Roxse case noted that an award of
specific performance in Massachusetts indicates that money
damages are inadequate, and thus specific performance
obligations are not dischargeable claims. In contrast,
Maryland law does not recognize the same principle of
excluding money damages as inadequate per se when
specific performance is awarded. Although Judge
Rodowsky’s opinion relied on the Roxse case, the
Massachusetts opinion offered no guidance to the case of
the Shermans nor to Maryland law.
Judge Rodowsky then considered the California
case, In re Aslan, 65 B.R. 826 (Bankr. C.D. Cal. 1986),
rev'd on other grounds, 909 F.2d 367 (9" Cir. 1990). The
Aslan court noted that a debtor can reject an executory
contract for sale in bankruptcy, thus transforming the
potential specific performance action into a dischargeable
claim. Judge Rodowsky compared this “conversion” to the
one he construed in Ohio v. Kovacs, stating that the “non-
debtor party’s election of the equitable remedy of specific
performance, a nonclaim remedy, would be transformed
into a claim by rejection.” In California, however, the
person who elects to reject the contract and invoke the
remedy of specific performance is the debtor, not the
creditor. If the creditor had the choice of performance or
damages, the debtor’s rejection of the contract would
remove the damages option, leaving the option of specific
performance, which the As/an court viewed as
dischargeable. The Aslan court did not say whether the
claim would be discharged if the creditor had the ability to
choose specific performance as its remedy, but nothing in
that case-suggested that specific performance would be
anything but dischargeable. In contrast to Ohio v. Kovacs,
where failure to perform an affirmative obligation can
subject one to money damages for the costs incurred by
someone else who performs the obligation, the Aslan court
identified that rejection of an affirmative obligation gives
rise to the right of specific performance. There is nothing
in the Aslan case to support the comparison set forth by
Judge Rodowsky and there is no connection identified
between the circumstances of the As/an case and the case of
the Shermans.
To support his position, Judge Rodowsky argued
that another California case also holds “that an asserted
right to specific performance is not a claim.” /n re Ter
Bush, 273 B.R. 625 (Bankr. S.D. Cal. 2002), noted that
breach of an agreement to transfer real property (a single
family dwelling) cannot be adequately compensated by
money damages, pursuant to California statute. Because
money damages were thus inadequate, the breach could not
give rise to a right of payment and thus would not be
discharged in bankruptcy. Maryland contains no such
statute or case law, and thus the case does not bear on
Judge Rodowsky’s interpretation of the Petitioner’s
obligations. Furthermore, the As/an court did not hold that
an asserted right to specific performance is not a claim, as
Judge Rodowsky claimed. The As/an opinion only held that
the involuntary right to specific performance is a claim and
remained silent with regard to the issue of an asserted right
to specific performance. As/an leaves the result as the same
in cither case in that the creditor remains with the right of
specific performance, be it voluntary or involuntary. If the
creditor could choose performance or damages for the
breach, then the underlying breach gives rise to a right of
payment, precisely as indicated in 11 U.S.C. § 101(5).°
Judge Rodowsky momentarily located the
proverbial needle in the haystack, but then let it slip away.
Judge Rodowsky considered Jn re Young, 214 B.R. 905
(Bankr. D. Idaho 1997), noting that in Idaho, money
damages are adequate for breach of contract and thus
specific performance can be discharged in bankruptcy.
Judge Rodowsky did note that “Idaho law does not differ
from that of Maryland.” In Idaho, specific performance is a
dischargeable claim. With these same legal underpinnings,
Judge Rodowsky could have found that specific
10
performance should also be dischargeable in Maryland, but
concerned about squeezing a legal result into the proverbial
Procrustean bed, the judge simply brushed aside the key
observation of the similarity between Idaho and Maryland
by stating, “We are not persuaded by the reasoning of the
Idaho court.” Without any elaboration, Judge Rodowsky
stated that the case “seems inconsistent” with limited
legislative history and the rationale employed in Ohio v.
Kovacs, even though there is nothing in the limited
legislative history that would prohibit the Idaho court and
the Maryland court from taking the position that specific
performance can be discharged where money damages are
an adequate alternative remedy. The concern expressed in
the statute’s legislative history is where only nominal
damages are available, which would clearly be inadequate.
Similarly, the focus of Ohio v. Kovacs is breach of a court
order for specific performance that resulted in money
damages: In Ohio v. Kovacs, the obligation of specific
performance had already matured and the resulting breach
of that obligation is what gave rise to a right of payment,
not the breach of some other obligation that could result in
specific performance. For the Shermans, there is no
existing order for specific performance, and thus the breach
of the underlying obligation could result in specific
performance or money damages, unlike in Ohio v. Kovacs.
Dissatisfied by the law of Idaho, Judge Rodowsky
steered instead toward the Jn re Ter Bush, in which the
California court was forced to make a determination based
on the California statute which per se finds money damages
inadequate to cure breach of an agreement to transfer real
property (a single family dwelling). Maryland lacks any
such statute, or any case law for that matter, which holds
that money damages are inadequate to cure breach of an
11
LE |
agreement to transfer real property. To the contrary,
Maryland law is flooded with examples of the application
of monetary values to assets in divorce, and how the
valuation of such assets is required in marital property
determinations.' Judge Rodowsky tried to tie up the
supposedly strong analogy by pointing out that the
Respondent sought only an affirmative injunction and not
damages, and thus payment of money was not an alternative
since it was not viable or adequate. While payment of
money might not be adequate under the California state
statute, there is no such bar in Maryland law, as Judge
Rodowsky explicitly recognized in his analysis.
Judge Rodowsky also asserted that two cases
dealing with the enforcement of covenants not to compete
support the conclusion that Petitioner’s specific
performance obligations were not discharged in bankruptcy.
However, neither Jn re Udell, 18 F.3d 403 (7" Cir. 1994)
1 Breach of a marital settlement agreement provision for the transfer
of property can give rise to a claim for money damages. See Dexter v.
Dexter, 105 Md. App. 678, 661 A.2d 171 (1995). In Dexter, the Court
awarded money damages to a spouse who was supposed to receive a
portion of her spouse’s pension benefit on an “if, as and when” basis.
In the case at hand, monetary values can be ascertained for real
property, time share property, a motor vehicle, and personalty such as
furniture. See Choate v. Choate, 97 Md. App. 347, 629 A.2d 1304
(1993) (valuation of real property performed by appraiser); Keys v.
Keys, 93 Md. App. 677, 614 A.2d 975 (1992) (valuation of
automobile); Paradiso v. Paradiso, 88 Md. App. 343, 594 A.2d 1200
(1991), cert. denied, 325 Md. 95, 599 A.2d 447 (1991) (valuation of
personalty such as furniture). Such valuations are required in most
divorce cases where a spouse seeks a transfer of marital property.
Breach of a marital settlement agreement to transfer property can thus
lead to a claim for the value of the property to be transferred as
damages for the breach.
12
nor Kennedy v. Medicap Pharmacies, Inc., 267 F.3d 493
(6 Cir. 2001), accomplish this goal. /n re Udell held that a
right to equitable relief for breach of performance is a claim
if the right to payment is an alternative remedy, because the
two remedies are substitutes for each other. The Udell
court found that the breach in its case gave rise to two
independent remedies - specific performance as a negative
injunction for future behavior and liquidated damages for
the past harm. The Udell court specifically noted that there
was no money damage that would be a substitute for the
injunction not to breach the covenant not to compete. 18
F.3 403, 409-410 (1994). For the Shermans, the
Respondent could have sought money damages in lieu of
specific performance, insofar as the property was of the
type that could be valued, as opposed to the damages in
Udell.
Kennedy v. Medicap Pharmacies, Inc. aptly noted
that a claim is deemed discharged if the court finds that a
monetary avard is adequate compensation and an
injunction not appropriate. Insofar as Kennedy is also a
case involving breach of a covenant not to compete, as
opposed to transfer of property between spouses, it is not
surprising that the case concurred with the Udell court.
Neither Kennedy nor Udell have any relevance to the
situation facing the Shermans.
Petitioner filed a motion for reconsideration with
the Court of Special Appeals on May 21, 2003. The Court
of Special Appeals denied the motion on June 10, 2003 and
issued the mandate on the same day. The Petitioner filed a
Petition for Writ of Certiorari with the Maryland Court of
Appeals. The Petition was denied on August 28, 2003.
13
REASONS FOR GRANTING THE PETITION
The state courts of Maryland have attempted to
eviscerate the legislative intent of Congress in enacting 11
U.S.C. §101(5) and the judicial intent of this Court in
upholding the breadth of bankruptcy discharge in Johnson
v. Home State Bank, 501 U.S. 78 (1991). By placing
narrow constraints on a federal law interpreted by this
Court, the state courts are undermining the authority of this
Court to interpret definitively the meaning of federal law.
The appellate opinion in this case further points to conflict
among federal and state courts that have decided this issue.
The petition should be granted because the state court
holdings fundamentally misconstrue this Court’s holding in
Johnson v. Home State Bank and suggest only further
confusion among the states in interpreting 11 U.S.C.
§101(5).
1. THE STATE COURT ERRED IN
DISREGARDING THE BROAD
BANKRUPTCY DISCHARGE RECOGNIZED
IN JOHNSON V. HOME STATE BANK
In both the trial court opinion from the Circuit Court
for Harford County and the appellate opinion from the
Maryland Court of Special Appeals, the case of Johnson v.
Home State Bank is disregarded. Both opinions actually
ignore the Johnson case almost entirely. Judge Baldwin’s
Memorandum opinion only notes the case in a string
citation (A33), while Judge Rodowsky’s opinion only notes
that Petitioner raised the case to support his claim (A7).
Neither opinion addresses this Court’s intent in identifying
14
the breadth of discharge of bankruptcy obligations.
Under 11 U.S.C. §101(5), a claim is defined as:
(1) right to payment,
whether or not such right is
reduced to judgment,
liquidated, unliquidated,
fixed, contingent, matured,
unmatured, disputed,
undisputed, legal, equitable,
secured or unsecured; or
(2)right to an
equitable remedy for breach
of performance if such breach
gives rise to a right to
payment, whether or not such
right to an equitable remedy
is reduced to judgment, fixed,
contingent, matured,
unmatured, disputed,
undisputed, secured or
unsecured [.]
Judge Baldwin’s decision in the Circuit Court for
‘Harford County was based on a misinterpretation of the
statute in which he failed to give the definition of claim the
broadest available definition intended by Congress to deal
with all of a debtor’s legal obligations, as directed by this
Court in Johnson and the Fourth Circuit Court of Appeals
in Stewart Foods, Inc. v. Broecker, 64 F.3d 141 (4" Cir.
1995). Judge Baldwin excluded claims that gave rise to a
right to an equitable remedy for breach of performance if
iD .
re |
such claims do not foreseeably lead to a nght to payment, a
limitation that is not contained within the statute and is at
odds with congressional intent and the holdings of this
Court. Congress intended by the language it used to adopt
the broadest available definition of the term “claim.”
Johnson at 83; Pennsylvania Dept. of Public Welfare v.
Davenport, 495 U.S. 552, 558 (1990). Congress intended
that this broadest of definitions would deal with all of the
debtor’s legal obligations. As noted in the congressional
reports prior to enactment of the statute:
By this broadest possible |
definition, and by the use of
the term throughout the title
11, especially in subchapter 1
of chapter 5, the bill
contemplates that all legal
obligations of the debtor, no
matter how remote or
contingent, will be able to be
dealt with in the bankruptcy
court.
H.R. Rep. No. 95-595, 95" Cong., 1" Sess. 309
(1977), reprinted in 1978 U.S.C.C.A.N. 5963, 6266; S.
Rep. No. 95-989, 95" Cong., 2d Sess. 22 (1978), reprinted
in 1978 U.S.C.C.A.N. 5787, 5808; noted in Davenport at
558; see also Grady v. A.H. Robins Co., 839 F.2d 198, 200
(4" Cir. 1988).
In using the broadest possible definition of “claim,”
the this Court adopted an expansive reading of the concept
of “right to payment”:
Soni ance
16
[T]o the extent the phrase
“right to payment” is
modified in the statute, the
modifying language
(“whether or not such right is
...”) reflects Congress’
broad rather than restrictive
view of the class of
obligations that qualify as a
“claim” giving rise to a
“debt.”
Davenport at 558. The “plain meaning of ‘right to
payment’ is nothing more nor less than an enforceable
obligation...” Id. at 559; cited in Johnson at 83. Judge
Baldwin correctly noted in the Memorandum that a claim
that “could possibly result in a claim for monetary
payment(s)” would be subject to the discharge of the
bankruptcy court. However, Judge Baldwin redefined the
statute to exclude obligations which are “solely equitable
and do not foreseeably result in a claim for monetary
relief.” This unnecessarily narrow definition attempted to
exclude enforceable obligations that otherwise would be
discharged in bankruptcy. Such judicial reinterpretation
undermines the authority of this Court. Q
Even if the narrowed redefinition utilized by Judge
Baldwin should be accepted, the Petitioner’s obligations
would still fall within the scope of discharged claims.
Breach of a marital settlement agreement provision for the
transfer of property can give rise to a claim for money
damages. See Dexter v. Dexter (In Dexter, money damages
were awarded to a spouse who was supposed to receive a
portion of her spouse’s pension benefit on an “if, as and
17
when” basis.) For the Shermans, monetary values can be
ascertained for real property, time share property, a motor
vehicle, and personalty such as furniture. As noted in
Footnote One above, monetary valuation of real property
performed by appraiser, monetary valuation of automobiles,
and monetary valuation of personalty such as furniture are
routinely performed in divorce cases. Breach of a marital
settlement agreement to transfer property can thus lead to a
claim for the value of the property to be transferred as
damages for the breach. As a result, the Petitioner’s
obligations could foreseeably give rise to a claim for
monetary payments.
An equitable remedy for breach of performance that
gives rise to a right of payment is a claim that is subject to
discharge in bankruptcy. Johnson at 83. The Respondent’s
claims for property owned by Petitioner were discharged in
his bankruptcy case. The Respondent could have
challenged Petitioner’s intention to discharge these claims
in the bankruptcy court, but did not so. Insofar as
Respondent did not challenge the discharge in bankruptcy
court and Petitioner was granted a discharge of the claims
against him, the Respondent should not be entitled to go
behind the discharge to obtain relief for her property
claims. Judge Baldwin did precisely this in misconstruing
this Court’s Opinion in Johnson.
s
II. STATE COURTS ARE IN CONFLICT AS
TO WHETHER THEY SHOULD
DISREGARD THE BREADTH OF |
BANKRUPTCY DISCHARGE RECOGNIZED ‘
IN JOHNSON V. HOME STATE BANK 4
18
_ Judge Rodowsky’s opinion in the Maryland Court
of Special Appeals makes a review of how other states have
addressed bankruptcy discharge issue for equitable claims.
Judge Rodowsky noted that the states have differing views
on how such claims should be handled. In Idaho, for
example, money damages are adequate for breach of
contract and thus specific performance can be discharged in
bankruptcy. In re Young. Under J udge Rodowsky’s
opinion, Maryland should take an opposite view. In
Massachusetts, money damages are not an adequate remedy
for breach of contract. Roxse Homes, Inc. California allows
for discharge of specific performance obligations under
_ certain conditions (depending on who elects the remedy). Jn
re Aslan. Depending on how a state looks at the issue, the
outcomes can be diametrically opposed.
The federal cases do not assist the states in their
reinterpretation of this Court’s position in Johnson. The
Sixth Circuit and Seventh Circuit cases on covenants not to
compete (Jn re Udell and Kennedy) do not shed light on the
specific performance obligations of property transfers, yet
they are cited in support of state court positions. Finally, the
use of Ohio v. Kovacs, a case which preceded this Court’s
opinion in Johnson by six years, does not clarify the
Court’s position with regard to dischargeability of equitable
obligations in bankruptcy. Without a clear statement from
this Court that equitable obligations are to be discharged in
bankruptcy as the statute requires and Johnson supports,
state courts will only continue to misconstrue what once
appeared to be established as federal law on this issue.
; 19
acacia ata
CONCLUSION
For the foregoing reasons, the Petition for Writ of
Certiorari should be granted.
Respectfully submitted,
JONATHAN S. GREENE
Counsel of Record
KRISTINE K. HOWANSKI
Howanski & Greene
401 Washington Ave.
Towson, MD 21204
410-296-8166
20
es i
ee
LAWRENCE R. SHERMAN * IN THE
*
COURT OF APPEALS
OF MARYLAND
<
*
*
Petition Docket No. 240
September Term, 2003
LYNNE P. SHERMAN *(No. 1364 Sept. Term, 2001,
Court of Special Appeals)
* * * * * *
ORDER
Upon consideration of the petition for a writ of
Certiorari to the Court of Special Appeals filed in the above
entitled case, it is
ORDERED, by the Court of Appeals of Maryland,
that he petition be, and it is hereby, denied as there has been
no showing that review by certiorari is desirable and in the
public interest.
“o/ ae
Chief Judge
Date: August 28, 2003
Al
Lawrence R. Sherman, * In the
Appellant, * COURT OF SPECIAL APPEALS
V. * No. 1367
Lynne P. Sherman, * September Term, 2001
Appellee. *
* * * * * 7
ORDER
This Court having considered Appellant's Motion
for Reconsideration, it is this 10" day of June, 2003, by the
Court of Special Appeals, ot
ORDERED that the Motion for Reconsideration is
hereby denied.
For a panel of the Court consisting of Judge
Kenney, Judge Sonner, and Judge Rodowsky
(Retired, specially assigned)
CHIEF JUDGE’S SIGNATURE
APPEARS ON ORIGINAL ORDER
Chief Judge
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UNREPORTED
IN THE COURT OF SPECIAL APPEALS
OF MARYLAND
No. 1367
September Term, 2001
LAWRENCE R. SHERMAN
v.
LYNNE P. SHERMAN
Sonner,
Kenney, -
Rodowsky, Lawrence F.
(Retired, specially assigned),
JJ.
Opinion by Rodowsky, J.
Filed: April 21, 2003
A3
Appellant, Lawrence R. Sherman (Mr. Sherman), is
aggrieved by a judgment of the Circuit Court for Harford
County ordering him specifically to perform certain
promises in a marital settlement agreement with the
appellee, Lynne P. Sherman (Mrs. Sherman). The
issue is whether Mr . Sherman’s liability for specific
performance has been discharged in bankruptcy.
The parties executed their marital settlement
agreement (the Agreement) in June 1999. In December of
that year Mrs. Sherman filed a complaint for specific
performance of the Agreement. By mutual consent in open
court at a hearing in April 2000, the Agreement was
modified in particulars that are not material to the
issue before us. Mrs. Sherman, in July 2000, sought an
absolute divorce in the same action, and she amended that
claim in September 2000. On October 12, 2000, Mr.
Sherman filed a petition for bankruptcy in the United States
Bankruptcy Court for the District of Maryland under
Chapter 13 of the Bankruptcy Code, Title 11
U.S.C., which stayed the state court proceedings. That
petition was later converted to one under Chapter 7 of the
Bankruptcy Code.
In Schedule F, "Creditors Holding Unsecured Non
priority Claims,” Mr. Sherman listed Mrs. Sherman as a
creditor, described her as holding "[v]arious claims arising
from and/or relating to the marriage and separation of the
parties." He stated the value of the claim to be
"{ujnknown." By order of the bankruptcy court
dated April 3, 2001, Mr. Sherman was granted a discharge
under Title 11 U.S.C. § 727.' Under subsection (b) of §
1 Unless otherwise noted, all statutory references are to Title 11
USA.
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727, a "discharge under subsection (a) of [§ 727]
discharges the debtor from all debts that arose before the
date of the order for relief under [Chapter 7\." We are not
further informed by the record before us concerning what
transpired in Mr. Sherman's bankruptcy.
Thereafter, the parties returned to the Circuit Court
for Harford County, where an absolute divorce decree was
entered. That court also heard Mrs. Sherman's pending
request for specific performance. Mr. Sherman opposed
that relief, contending that the requested equitable relief
was a claim barred by his discharge in bankruptcy.
Under § 101(12) “‘debt’ means liability on a
‘claim.’” Section 101(5) defines “claim” to mean:
“(A) right to payment, whether or not such
right is reduced to judgment, liquidated,
unliquidated, fixed, contingent, matured,
unmatured, disputed, undisputed, legal,
equitable, secured, or unsecured; or
(B) right to an equitable remedy for breach
of performance if such breach gives rise to a
right to payment, whether or not such right
to an equitable remedy is reduced to
judgment, fixed, contingent, matured,
unmatured, disputed, undisputed, secured, or
unsecured[.]"
The circuit court agreed with Mr. Sherman that all of [his]
pre-petition 'right-to-payment' obligations, including those
to [Mrs. Sherman] were clearly discharged by the
bankruptcy court.” The circuit court, however, further held
AS
“any obligations of [Mr. Sherman] to [Mrs.
Sherman] arising out of the Agreement and
subsequent stipulation on the record which
are solely equitable and do not foreseeably
result in a claim for monetary relief, are
valid and enforceable obligations.”
The court ordered Mr. Sherman to transfer his one-third
interest in a townhouse in Towson, Maryland to Mrs.
Sherman and to the parties' daughter, as joint tenants, to
transfer his interests in a timeshare unit in the Poconos and
in three timeshare units in Cocoa Beach, Florida to Mrs.
Sherman, and to transfer or return to her certain personal
property itemized on a referenced exhibit.’ This appeal
followed.*
Mr. Sherman basically makes two interrelated
arguments. He contends that the order appealed from
violates congressional intent which was to give “claim,” as
used in the Code, the broadest possible meaning.
Alternatively, even if the construction employed by
the trial court (obligations "solely equitable” are not
“claims”’) was consistent with § 101 (5) (B), he submits
that “[b]reach of a marital settlement agreement provision
for the transfer of property can give rise to a claim for
money damages." We shall consider these arguments
together.
There is no doubt that § 101(5) was intended by
Congress to have a very broad meaning, particularly in
3 Neither party argues that the outcome here might differ based
upon differences in the types of property which are the subjects of the
circuit court’s order
4 Mrs. Sherman noted a cross-appeal but it was not briefed and
has been abandoned.
A6
contrast to "provable" claims under the predecessor
Bankruptcy Act. See T. Matthews, The Scope of Claims
Under the Bankruptcy Code, 57 Am. Bank. L.J. 221, 231
(1983). Mr . Sherman cites Pennsylvania Dep' t of Pub.
Welfare v. Davenport, 495 U.S. 552, 110s. .Ct. 2126, 109
L. Ed. 2d 588 (1990), where the Court referred H.R. Rep.
No.95-595, at 309, U.S. Code Cong. & Admin. News 1978,
p. 626, as "describing definition of 'claim' as ‘broadest
possible' and noting that Code ‘contemplates that all legal
obligations of the debtor. .. will be able to be dealt with in
the bankruptcy case.” Id. at 558, 110 S. Ct. at 2130.
Davenport's holding was that restitution obligations,
imposed as conditions of probation in state criminal
actions, were "debts" dischargeable under Chapter 13.
For the proposition that "claim" is a very broad
concept, Mr. Sherman also cites Johnson v. Home State
Bank, 501 U.S. 78, 111 S. Ct. 2150, 115 L. Ed. 2d 66
¢1991). There the Court held that, after the debtor's
personal liability on a note had been discharged in Chapter
7, the lien of the mortgage securing the loan evidenced by
the note was a “claim” subject to inclusion in an approved
Chapter 13 reorganization.
In the case before us the circuit court essentially
held that Mrs. Sherman's "right to an equitable remedy for
breach of performance" did not "give [ ] rise to a right [to]
payment,” § 101 (5) (B). The issue here is whether Mrs.
Sherman's equitable remedy gave rise to "a right to
payment." As we shall see, application of the "right to
payment" concept in § 101(5) has not been free from
difficulty for courts and commentators.
Section 101(5) is the product of a compromise
between the original House and Senate versions of the
Bankruptcy Reform Act. Originally, the House "would
A7
have deemed a right to an equitable remedy for breach of
performance [to be] a claim even if it did not give rise to a
right to payment." Ohio v. Kovacs, 469 U.S. 274, 280, 105
S. Ct. 705, 708, 83 L. Ed. 2d 649 (1985) (footnote omitted).
The Senate's initial definition of claim was narrower. Id.°
In the compromise version that was finally adopted, "the
key phrases ‘equitable remedy’, ‘breach of performance,’
and ' right to payment’ are not defined ... nor are the
differences between the successive versions explained." Id.
at 280, 105 S. Ct. at 708.
The legislative history [or § 101 (5) (B)] offers only
a statement by the sponsors of the Bankruptcy Reform Act
with respect to the scope of the provision[.]” Id. As quoted
in Ohio v. Kovacs one sponsor said:
“Section 101[5] (B) ... is intended to cause
the liquidation or estimation of contingent
rights of payment for which there may be an
alternative equitable remedy with the result
that the equitable remedy will be susceptible
to being discharged in bankruptcy. For
5 The third and final version of the Senate bill defined “claim”
as follows:
“(4) ‘Claim’--
“(A) means any right to payment, other than that of an
expense allowable under section 503, whether or not such nght is
reduced to judgment, liquidated, unliquidated, fixed, contingent, legal,
equitable, secured, or unsecured; and
“(B) includes, except where specifically provided otherwise,
interest thereon provided by law or contract[.]”
Senate Bill 2266 (as reported August 10, 1978, from the Committee on
Finance), 95th Cong., 2d Sess. {1978), § 101 {4); 124 Cong. Rec. S.
13074 {daily ed. Aug. 10, 1978).
A8
example, in some States a judgment for
specific performance may be satisfied by an
alternative right to payment in the event
performance is refused; in that event, the
creditor entitled to specific performance
would have a “claim” for purposes of a
proceeding under title 11.””
Id. (quoting 124 Cong. Rec. 32393 (1978) remarks of Rep.
Edwards) (footnote partially omitted).
The illustration by Rep. Edwards presents a version
of the remedy of specific performance that is unknown to
Maryland law. The illustration presupposes a judgment for
specific performance which fixes an alternative amount of
money damages, a refusal specifically to perform by the
judgment debtor, and a satisfaction of the judgment by the
judgment holder's enforcing the alternative right to
payment. We recognize, however, that the illustration is
not intended to exhaust the category of equitable “claims”
or to illustrate equitable nonclaims.
One commentator, writing shortly after the adoption
of the Code, presented a hypothetical to illustrate the
difficulty caused by the lack of definition for, legislative
history relating to, and operative federal policy underlying,
the § 101(5) element of "right to payment.”
"A breach of performance is committed
against a nondebtor party and the bankruptcy
court looks to nonbankruptcy law to see
what remedies arise from such a breach.
Assume that the nondebtor party favors a
finding that the breach gives rise to an
equitable remedy that does not constitute a
claim. Support for her position can come
from analogous cases under nonbankruptcy
A9
——<xoa-_
law where equitable relief was granted
because of the difficulty of proving damages
with reasonable certainty. In such cases, it
can be argued that there is no alternative
right to payment, save for a nght to nominal
damages, because the risk of
undercompensating or unjustly enriching the
plaintiff is too great. Moreover, the
nondebtor party can reasonably assert that a
right to nominal damages can not, as a
matter of federal law, constitute a ‘right to
payment’ given the policy that probably
motivated the redrafting of section 101[5]
(B). The framers of the Code may have cut
back the definition of claim so that the
estimation and liquidation of equitable
remedies under section 502(c) would be
more equitable for nondebtor parties and
more administrable for the courts. The
cutback is rendered ineffectual and its
underlying policy is thwarted if a right to
nominal damages constitutes a ‘right to
payment’ under the Code. This is because
nonbankruptcy law invariably allows
nominal damages for breach of performance,
even when damages are inadequate and
equitable relief is available. Consequently,
most, if not all, equitable remedies become
claims under this interpretation of the phrase
‘right to payment.’ This in turn raises the
estimation problems that the Code framers
probably intended to mitigate by redrafting
section 101[5](B). In addition, it is arguably
Al0
inequitable to force a nondebtor party to take
a claim measured in dollars when, under
nonbankruptcy law, money damages are
inadequate and relief is limited to an
equitable remedy or a right to nominal
damages. Thus, the nondebtor party in this
example can take the position that her right
to an equitable remedy is not a claim under
the Code in light of applicable
nonbankruptcy law and the policy behind the
compromise language of section 101[5] (B).
The trustee in this example takes the
opposite position and asserts that a claim
under the Code does arise from the breach of
performance. The trustee can make two
basic arguments to support this position.
First, he can argue that under applicable
nonbankruptcy law this kind of breach of
performance gives rise only to a right to
payment. This can be demonstrated through
analogous cases in which a right to damages
was held to be an adequate remedy and
equitable relief was denied. Second, even if
the breach of performance gives rise to an
equitable remedy under nonbankruptcy law,
the trustee can argue that the breach also
gives rise to an alternative ‘right to payment’
within the meaning of the Code. Support for
this view can come from analogous cases
under nonbankruptcy law in which equitable
relief was granted, even though damages
were found to be adequate and available at
the plaintiff's election. In addition, the
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——=_
trustee can also take the position that a
breach of performance always gives rise to
an alternative right to nominal damages; and
that such right is a ‘right to payment’ under
the Code given the plain language of section
101[5](B) and the policy behind a broad
definition of claim."
M.R. Julis, Classifying Rights and Interests Under the
~ Bankruptcy Code, 55 Am. Bankr. L.J. 223, 240-42 (1981)
(footnotes omitted).
Some guidance on the problem analyzed above was
given in Ohio v. Kovacs, supra. An injunction bad been
entered against Kovacs restraining him from further
environmentally polluting a site and requiring him to
remove specified wastes. Kovacs, who at some point bad
taken bankruptcy, did not comply with the affirmative
“cleanup," resulting in the appointment of a receiver to
perform those tasks. Ohio sought a declaration in the
bankruptcy court that Kovacs's obligation to clean up the
site was not a liability on a claim and, therefore, not
dischargeable. The Court, affirming all of the lower courts,
held that the obligation to Ohio was dischargeable on the
following rationale: .
"What the receiver wanted from Kovacs
after bankruptcy was the money to defray
cleanup costs. At oral argument in this Court
the State's counsel conceded that after the
receiver was appointed, the only
performance sought from Kovacs was the
payment of money. ...Had Kovacs
furnished the necessary funds, either before
or after bankruptcy, there seems little doubt
that the receiver and the State would have
Al2
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been satisfied. On the facts before it, and
with the receiver in control of the site, we
cannot fault the Court of Appeals for
concluding that the cleanup order had been
converted into an obligation to pay money,
an obligation that was dischargeable in
bankruptcy.”
Ohio v. Kovacs, 468 U.S. at 283, 105 S. Ct. at 710
(emphasis added).
In the concluding section of its opinion, the Court
emphasized what it had not decided. Among these caveats,
the Court said:
“Fourth, we do not hold that the injunction
against bringing further toxic wastes on the
premises or against any conduct that will
contribute to the pollution of the site or the
State's waters is dischargeable in bankruptcy
we here address. . . only the affirmative.
duty to cleanup the site and the duty to pay
money to that end."
Id. at 284-85, 105 S. Ct. at 710-11.
It was after the receiver began performing Kovacs's
cleanup obligations under the injunction, and apparently
expending funds advanced by Ohio to do so, that Ohio
sought reimbursement for those advances. In that way the
affirmative injunction was "converted" into a dischargeable
claim. That reading of Kovacs strongly suggests that the
initial affirmative injunction was not an order for the
payment of money for Kovacs's breach of performance of
his obligations under environmental laws.
The parties have not referred us to any judicial
precedents on the issue before us, and our research
indicates a split of authority. Roxse Homes, Inc. v. Roxse
Al3
Homes Ltd. Partnership, 83 B.R. 185 (D. Mass. 1988), aff'g
In re Roxse Homes, Inc., 74 B.R. 810 {Bankr. D. Mass.
1987), granted relief from the bankruptcy stay to the holder
of a judgment for specific performance. The bankruptcy
court had concluded that the judgment was not a "claim"
because, under Massachusetts law, it could not be satisfied
by the payment of money damages. 74 B.R. at 818-19. The
district court agreed, stating that § 101(4), now § 101(5),
provided that "an equitable remedy wili only constitute a
claim if the underlying breach gives rise to a right to the
payment of money damages." 83 B.R. at 188. Under
Massachusetts law, however, "an award of specific
performance imports a judicial finding that money damages
are inadequate or inappropriate." Id. The decision can be
viewed as considering that the theoretical remedy of
electing to sue for money damages, even if inadequate, did
not convert the specific performance remedy into a "claim."
This reading of § 101 (5) is confirmed by In re
Aslan, 65 B.R. 826 (Bankr. C.D. Cal. 1986), rev'd on other
grounds, 909 F.2d 367 {9th Cir. 1990).There, the nondebtor
purchaser of realty had an action for specific performance
pending in state court when the debtor filed in bankruptcy
under Chapter 11. One issue before the court was whether
the debtor should be permitted to reject the executory
contract of purchase and sale under the business judgment
test. Id. at 828. As a preliminary matter, the court
concluded "that it must first determine the effect of
rejection on the Specific Performance Action." Id. After
reviewing the legislative
history of present § 101(5) the court held as follows:
"Damages for rejection of an executory
contract become a claim dischargeable in the
bankruptcy only if under state law the
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creditor would have the choice of more than
one possible remedy, with one of the choices
being a monetary claim. The filing of the
bankruptcy and rejection of the contract
under the bankruptcy shifts the choice of
remedy from one which is solely in the
hands of the creditor to a choice by the
debtor, upon approval of the Court. Thus, in
California, an executory contract for sale of
real property can be rej ected and the
potential action for specific performance
will be transformed into a pre-petition claim,
which may be discharged in the bankruptcy."
Id. at 831. Thus, In re Aslan presents an analysis similar to
that of Kovacs v. Ohio, supra. The nondebtor party's
election of the equitable remedy of specific performance, a
nonclaim remedy, would be "transformed" into a claim by
rejection, in the same fashion as the affirmative cleanup
order issued to Kovacs became a claim when Ohio sought
reimbursement for the cleanup performed by the receiver.”
Also holding that an asserted right to specific
performance is not a claim is In re Ter Bush, 273. B.R. 625
(Bankr. S. D. Cal. 2002}. That case arose out of an
arbitrator's award of specific performance involving a
single family dwelling. California Civil Code § 3387
provided that "it is to be presumed that the breach of an
agreement to transfer real property cannot be adequately
relieved by pecuniary compensation." Ter Bush, 273 B.R.
at 628. Under the statute, that presumption was conclusive
6 Assuming arguendo, that Mr. Sherman could have rejected the
Agreement, or parts thereof, under bankruptcy law, there is no
evidence he did so.
Al5
where the property was a smgle family dwelling. The court
reasoned that
"{i]mplicit in the arbitrator's award for
specific performance is that he considered
and followed California law in this regard
and that money damages were inadequate.
The Court concludes that the arbitrator's
award for specific performance is not a
claim within the meaning of the Code
because the underlying breach in this case
does not give rise to a right to the payment
of money damages."
Id. at 628-29.
The opposite conclusion was reached in In re
Young, 214 B..R. 905 (Bankr. D. Idaho 1997). That court
reasoned that, under Idaho law, a party aggrieved by a
breach of contract may seek damages based on the
expectation, the restitution, and the reliance interests. In
this respect, Idaho law does not differ from that of .
Maryland. The court pointed out that "equitable relief, such
as specific performance, could also fulfill the expectation
interest," id. at 912, just as benefit of the bargain damages
would vindicate that interest Because specific performance
was not the only remedy available, but there was "an
alternative right to payment available, "the creditor seeking
specific performance presented a dischargeable claim. Id.
We are not persuaded by the reasoning of the Idaho
court. It seems inconsistent with the limited legislative
history and with the rationale employed by the Supreme
Court in Kovacs. Further, there is a strong analogy between
Maryland specific performance law and that of California
as applied in the Ter Bush case.
In Maryland
Al6
ee tet ER ALOT CET TICLE, AI LEE LE ETE I IE IE IE I I I we Ae
"(a] court may not refuse to specifically
enforce a contract on the ground that the
party seeking specific enforcement has an
adequate remedy in damages unless the party
resisting specific enforcement shall:
"(1) Prove that the party has property
from which the damages may be collected,
or
"(2) Give bond in an amount to be
determined by the court and with security
approved by the court, to perform the
contract or pay all costs and damages that
may be adjudged for breach or
nonperformance against the party resisting
specific enforcement."
Maryland Code (1974, 2002 Repl. Vol.), § 3-601 of the
Courts and Judicial Proceedings Article (emphasis added).
Here, Mrs. Sherman sought only an affirmative injunction
- and not damages. Payment of money was not an alternative,
because that remedy was not viable or adequate. Indeed, the
circuit court could not have refused the remedy of specific
performance against the recently bankrupt Mr. Sherman.
Damages were not in any meaningful sense an alternative
remedy.
Our conclusion is reinforced by the greater number
of cases that have considered the meaning of a "right to
payment" under § 101(5) in the context of enforcing
covenants against competition. In re Udell, 18 F.3d 403
(7th Cir. 1994), is a leading case on that subject. Udell's
former employer sued him for threatened breach of a
noncompete agreement, claiming an injunction and
liquidated damages as stipulated in the contract. After the
state court had entered a preliminary inj unction Udell filed
Al7
in Chapter 13. He argued that an equitable remedy is a
claim unless the equitable relief is the sole remedy
available for breach of the promised performance. Id. at
408.
The Seventh Circuit looked to the comments of a
sponsor of the Bankruptcy Reform Act who stated that
"rights to an equitable remedy for a breach of performance
with respect to which such breach does not give rise to a
right to payment are not "claims" and would therefore not
be susceptible to discharge in bankruptcy." Id. at 407
(quoting 124 Cong. Rec. 32393 (1978) (remarks of Rep.
Edwards)). The Court then held that
"a right to an equitable remedy for breach of
performance is a 'claim' if the same breach
also gives rise to a right to payment ‘with
respect to' the equitable remedy. If the right
to payment is an ‘alternative' to the right to
an equitable remedy, the necessary
relationship clearly exists, for the two
remedies would be substitutes for one
another. This is the example of 'claim' given
in the legislative history."
Id. at 408. Applying that construction of § 101(5) to the
facts before it, the Seventh Circuit concluded that the
injunction was not a claim because the threatened breach in
that case
"could give rise to two independent
remedies; (1) an injunction against the future
realization of the threat, and (2) liquidated
damages for the actual harm that has already
accrued from the threat. [The plaintiff's]
right to liquidated damages does not arise
‘with respect to' its right to an injunction...
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5a ea DENRAP WAS ka De Ha ek A OR AU SSK. Stl a hc las kT eile Wie aati act ie eat Dit AREY 2! wired ites Moe abs ean wave ati
the two rights address entirely separate
remedial concerns."
Id. at 409. The Court also noted that, if an injunction is a
dischargeable claim unless it is the sole remedy, as argued
by Udell, then the United States Supreme Court in Kovacs
"should have ended the case" on the language of the statute.
Id. at 408. We might add that the plaintiff in Udell
presumably could have elected not to seek an injunction
against future harm, but to undertake to prove damages as
they accrued from time to time. That theoretical remedy is
not mentioned in the opinion and would not seem to be
"the alternative" to which the Court is referring.’
The Sixth Circuit recently has agreed with Udell.
Kennedy v. Medicap Pharmacies, Inc., 267 F.3d 493 (6th
Cir. 2001). That court reached its conclusion after a review
7 A concurring opinion in Udell reached the same result, but
more forcefully.
"To appreciate the patent absurdity of implementing the plain
text of Section 101(5) (B) one must keep in mind that this is a
bankruptcy statute. If, following the plain language, an injunction may
be stayed in bankruptcy anytime the underlying breach of contract or
law also happens to give rise to money damages, the real-world results
would be ludicrous. If we were to apply the plain text of § 101(5) (B)
to individuals restrained by court orders--e.g. trespassers, polluters,
stalkers, batterers--theoretically, simply by filing bankruptcy, the
violator could escape from any restraining order prompted by a breach
that also gave rise to an award of money damages. Certainly the parade
of horribles is extensive, and I need not belabor it further. Since the
text of § 101(5) (B) presents one of those extremely unique
circumstances of patent absurdity, we may turn to the purpose, context
and policy of § 101 (5) (B) to supplement its plain language.”
Udell, 18 F. 3d at 412 (Flaum, J., concurring) (footnote omitted).
Al9
of the cases which it summarized as set forth below:
"The majority of bankruptcy courts have
held that the right to equitable relief for
breach of a covenant not to compete is not
dischargeable in bankruptcy. Some cases,
relying on Kovacs have held that the right is
not a claim because compliance does not
require the expenditure of money. See R. J.
Carbone Co. v. Nyren ( In re Nyren), 187
B.R. 424, 425 (Bankr. D. Conn. 1995); In re
Hughes, 166 B.R. 103,106 (Bankr. S.D.
Ohio 1994); May v. Charles Booher &
Assoc. (In re May), 141 B.R. 940, 944
(Bankr. S.D. Ohio 1992); In re Peltz, 55
B.R. 66, 338 (Bankr. M.D. Fla. 1985);
Carstens Health Indus. v. Cooper (In re
Cooper), 47 B.R. 842, 845 (Bankr. W.D.
Mo. 1985). Others have held that the
injunctive right is not a claim because it is
available only if the remedy at law is
inadequate and there is, therefore, no right to
payment arising from the breach. See In re
Reppond, 238 B.R. 442, 443 (Bankr. E.D.
Ark. 1999); In re Printronics, Inc., 189 B.R.
995, 1001 (Bankr. N.D. Fla. 1995); Oseen v.
Walker (In re Oseen), 133 B.R. 527 (Bankr.
D. Idaho 1991); In re Cox, 53 B.R. 829, 832
(Bankr. M.D. Fla. 1985). In some cases, the
stay was lifted to permit a state court to
determine whether monetary damages were
adequate. If the state court found injunctive
relief was appropriate, then injunctive relief
was not construed by the bankruptcy court to
A20
be a claim. If the court found that a
monetary award was adequate compensation
and an injunction was therefore not
appropriate, then the plaintiff's entire claim
was discharged under 11 U.S.C. § 727(b).
See, e.g., Cox, 53 B.R. at 832."
Id.at 496. The Court was unpersuaded by two cases to the
contrary, In re Kilpatrick, 160 B.R. 560 (Bankr. E.D. Mich.
1993), and Maids Int '1, Inc. v. Ward, 194 B.R. 703 (Bankr.
D. Mass. 1996).
Here there has been no demand by Mrs. Sherman
for damages as an alternative to specific performance. Nor
has the circuit court determined any damages or entered any
judgment in the alternative. There is no §101(5) claim.
JUDGEMENT OF THE CIRCUIT
COURT FOR HARFORD COUNTY
AFFIRMED.
COSTS TO BE PAID BY THE
APPELLANT.
LYNNE P. SHERMAN * IN THE
Plaintiff * CIRCUIT COURT
V. * FOR
LAWRENCE R. SHERMAN * HARFORD COUNTY
Defendant * Case No: 12-C-99-3055
+ * aa * a =
AMENDED ORDER
The Circuit Court for Harford County having been
informed that the Plaintiff's maiden name was incorrectly
spelled on the original Order of July 30, 2001, it is this _2_
Day of August, 2001,
ORDERED that paragraph two (2) of the July 30,
2001, Order be amended as follows:
1. The Plaintiff, LYNNE P. SHERMAN, is granted
the use of her maiden name, LYNNE P. TRAUTWEIN;
and.
2. All other remaining paragraphs in the July 30,
2001, Order shall remain unchanged.
IT ISSO ORDERED THIS _ 2 _ Day of August,
2001.
MAURICE W. BALDWIN, JR., Judge
cc: Henry W. Stewart, Esq.
Law Offices of Henry W. Stewart, P .A.
209 Courtland A venue
Towson, Maryland 21204
A22
George A. Breschi, Esq.
409 Washington A venue, Suite 600
Towson, Maryland 21204
Jonathan S. Greene, Esq.
Howanski & Greene
410 Washington Avenue, Suite 803
Towson, Maryland 21204
A23
LYNNE P. SHERMAN * IN THE
Plaintiff * CIRCUIT COURT
V. * FOR
LAWRENCE R. SHERMAN * HARFORD COUNTY
Defendant * Case No: 12-C-99-3055
* * * * * *
MEMORANDUM OPINION AND ORDER
This matter is before the Court on Plaintiff's
Amended Complaint for Judgment of Absolute Divorce,
Specific Performance, Damages and Other Relief. The
matter was held sub curia after a hearing before the Court
on June 25,2001. At the hearing, the Court granted Plaintiff
a judgment of absolute divorce and the use of her maiden
name, Lynne Paige Troutwein. The issue of whether the
Court could enforce the parties’ Marital Settlement
Agreement subsequent to Defendant's discharge in
bankruptcy Is the only remaining issue to be determined.
FACTUAL AND PROCEDURAL BACKGROUND
This is a case in which Plaintiff, Lynne P. Sherman
(hereinafter "Plaintiff), filed a Complaint on December 6,
1999, requesting that the Court order Defendant, Lawrence
R. Sherman, (hereinafter "Defendant") to specifically
perform under the terms of the parties' Marital Settlement
Agreement as executed by the parties on June 30, 1999
(hereinafter "the Agreement"). In her Complaint, the
Plaintiff specifically requested that the Defendant be
A24
ordered to: 1) sign any and all documents necessary for the
transfer of Defendant's one-third interest in the property of
the townhouse located at 111 Marburth Avenue, Towson,
Maryland 21286 (hereinafter "the Towson townhouse"), to
Plaintiff; 2) reinstate any and all medical insurance at the
place of Defendant's employment and reimburse Plaintiff or
any and all out-of-pocket expenses which may have been
incurred by her with respect to his actions in terminating
said insurance; 3) execute any and all documents necessary
to effectuate the transfer of the Defendant's one-quarter
interest in the Coco Beach and Pocono time-share units to
the Plaintiff as set forth in the Agreement, and reimburse
her for any and all out-of-pocket expenses or loss for
damages resulting from his actions in exchanging/canceling
said units, so as to prevent Plaintiffs use of the same; 4)
have delivered to Plaintiff all of those personal property
items as set forth on Schedule A of the Agreement; 5)
maintain automobile payments on both of the automobiles
of the children; and 6) reimburse Plaintiff any and all
counsel fees necessary in bringing this cause of action, -
including court costs.
Defendant filed a Motion to Dismiss the Plaintiff s
complaint on January 11, 2000, alleging that the Plaintiff
had failed to join necessary parties under Maryland Rule
2-211, namely the parties’ two adult children who shared
property interests in the time-share properties and the
Towson townhouse. An answer to the motion to dismiss
was filed by Plaintiff on January 14, 2000, denying the
necessity of joining the parties’ adult children in the action
and contending that the motion to dismiss was a frivolous
attempt to delay specific performance by the Defendant as
provided for under the Agreement and to intensify
Plaintiff's damages resulting therein.
A25
A hearing was held on April 11, 2000, before The
Honorable William 0. Carr, and a stipulation modifying the
Agreement was placed on the record. The stipulation
provided that the Agreement was to remain ill full force and
effect with the following modifications: 1) the Defendant's
one-third interest in the Towson townhouse was to be
transferred to Plaintiff and the parties’ adult daughter,
Angela, so that Plaintiff and Angela would enjoy a joint
tenancy in the townhouse; 2) the parties agreed to sell the
Cancun time-share and split the proceeds of that sale; 3) the
provision regarding the Defendant's payment for both
children's automobile loans was deleted from the
Agreement; 4) the mutual waiver of retirement benefits was
to continue contingent on disclosure by both parties; and 5)
the parties agreed that the transfer of all personal property
in the list attached to the Agreement would take place
within 30 days.
On May 2, 2000, an Order was signed by Judge Carr
allowing for removal of the piano, piano bench and music
from the former marital home by Plaintiff and at her
expense to take place on May 3, 2001. Plaintiff filed a
Complaint for Contempt on May 9,2000, alleging that the
Defendant had failed to follow the May 2 Order by refusing
to cooperate with respect to the pick up by the Plaintiff of
the piano, piano bench and music. A Motion to Vacate [the
May 2, 2000] Order was filed by the Defendant on May 12,
2000, arguing that Plaintiff had improperly made an ex |
parte application to the Court in order to obtain the May 2, 4
2000, Order which was not in accord with the parties' :
stipulation placed on the record on April 11, 2000. Plaintiff
filed a Response to the Motion to Vacate Order on May 2,
2000, Order allowing for Plaintiff's removal of the piano,
piano bench and music since it was an improper ex parte
A26
~
order which was not agreed upon by the parties.
On July 5, 2000, the Plaintiff filed a Complaint for
Judgment of Absolute Divorce with an attached transcript
of the April 11, 2000, Stipulation on the Record requesting
that she be granted a judgment of absolute divorce
incorporating the Agreement and the April 11, 2000,
modifications thereto. She also requested that she be
granted the use of her maiden name.
An Amended Complaint for Judgment of Absolute
Divorce, Specific Performance, Damages and Other Relief
was filed by the Plaintiff on September 22, 2000. In the
Amended Complaint, Plaintiff alleged that the Defendant:
1) failed to convey to Plaintiff of his right, claim, title
and/or interest in and to the Towson townhouse, despite
repeated requests; 2) has refused and continues to refuse to
relinquish personal items listed in the Agreement to
Plaintiff; 3) has refused and continues to refuse to execute a
transfer of title and gift certificate top the 1997 Lincoln
Town Car to Plaintiff; 4) has refused and continues to
refuse to make payments for the automobiles of the
children, namely a 1995 Chevrolet Neon and a 1997
Chevrolet $10 truck; 5) interfered with and caused to be
canceled the time-share plans of the Plaintiff; 6) refused
and continues to refuse to maintain medical insurance on
behalf of the adult child of the parties, namely Christopher
Sherman, causing Plaintiff to incur the expense of
maintaining such insurance; and 7) caused Plaintiff
considerable expenses and loss of economic use of certain
properties and items by and through his wilful and
malicious actions. The Plaintiff requested that the Court
order Defendant’s specific performance as to each of the
allegations in the amended complaint and award her
monetary damages for Defendant’s wilful, wrongful and
A27
ee
ee
~
2000, he had filed a Petition for Bankruptcy under Chapter
13 of the U.S. Bankruptcy Code in the U.S. Bankruptcy
Court for the District of Maryland, Case No. 00-6-2818.°
Plaintiff and her counsel, Henry Stewart, Esquire, were
listed as unsecured, non-priority creditors on schedule F of
Defendant's bankruptcy petition. An order staying
proceedings during the Defendant's bankruptcy case was
signed by Judge Marshall on November 13, 2000.
Subsequently, on April 3, 2001, the Defendant received a
discharge from the United States Bankruptcy Court as to all
claims against his property and estate as listed in his
bankruptcy petition.
The case came for trial on the merits as pertaining to
the divorce and property issues on June 25, 2001. At that
hearing, the Plaintiff requested that the Court order specific
performance of the Defendant's remaining property
obligations under the Agreement as well as punitive
damages and attorney's fees due to Defendant's wilful
refusal to abide by the Agreement. Specifically, the Plaintiff
urged the Court to address the following outstanding
obligations: 1) the transfer of Defendant's one-third interest
in the Towson townhouse to Plaintiff and Angela Sherman
as joint tenants; 2) the transfer of Defendant's-one-quarter
interest in the parties' Cocoa Beach and Pocono time-share
units to Plaintiff; 3) reimbursement for health insurance
expenses for Plaintiff and Christopher Sherman in the total
amount of $385.11 to Plaintiff; 4) reimbursement for
Plaintiffs out-of-pocket expenses due to Defendant's time-
share cancellation(s) in the total amount of $6,717.45 to
1 Defendant’s Chapter 13 bankruptcy petition was later
converted to a Chapter 7 filing under which it was subsequently
discharged.
A28
ee SS
Plaintiff; 5) payment of one-half of Defendant's settlement
proceeds from his resolved claim with his former employer,
Physician Support Services, LLC, in the total amount of
$13,500.00 to Plaintiff; 6) transfer of an interest in
Defendant's pension plan due to his non-disclosure of his
retirement benefit information to Plaintiff; 7) transfer of
certain personal property’ as listed in Schedule A of the
Agreement to Plaintiff; 8) transfer of the title and gift
certificate form for the 1997 Lincoln Town Car to Plaintiff;
and 9) payment of attorney's fees for Plaintiff s counsel in
the total anlount of $7 ,937.50 to Plaintiff.
The Defendant urged the Court that he was no
longer liable to the Plaintiff for any of the obligations made
under the Agreement due to his subsequent discharge in
bankruptcy. Additionally, Defendant argued that the
Plaintiff's complaint should have been dismissed due to her
failure to join necessary parties, namely the parties' two
children, under Maryland Rule 2-211 because both of their
interests as joint owners in four of the time-share units and
Angela's interest as one-third owner in the Towson
townhouse would be impaired or impeded by the outcome
of this proceeding. Furthermore, the Defendant alleged that
Plaintiff had not fulfilled her obligations under the
Agreement by not transferring her interest in the marital
home to Defendant. Defendant contends that based on his
2 The specific items of personal property alleged not to have
been returned to Plaintiff are spelled out in the Plaintiff's Exhibit 5 as
follows: two lamps from family room; futon from basement; patio
furniture (Rubbermaid storage container, Hot tub, four white stacking
chairs); picture from family room wall; Longaberger baskets; white
crotcheted bedspread from grandmother; one-half crafts made by Angie
and Chris during school years; sky chair from basement; and one-half
of tools (such as hammer, screwdrivers, power tools, weedwacker).
A29
understanding of the Agreement, Plaintiff was only to
receive Defendant's interest in one of the Cocoa Beach
time-share units. Defendant also alleges that the parties had
agreed to split their son's college tuition, but Plaintiff has
not contributed '°
As indicated above, the Court granted Plaintiff an
absolute divorce and the use of her maiden name. This
opinion addresses the outstanding property issues between
the parties described in their Marital Settlement Agreement
of June 30, 1999, and Stipulation on the record of Aprill1,
2000, and how these obligations are affected by Defendant's
discharge in bankruptcy.
STANDARD OF REVIEW
A. Court's Authority to Enforce Marital Property
Settlement Agreements in Divorce Cases
The Court of Appeals has long recognized the
validity of property settlements between husband and wife.
See Md. Code Ann. Fan1. Law § 8-101 (2001); Frana v.
Frana, 12 Md. App. 273, 278 A.2d 94 (1971); Brown v.
Brown, 248 Md. 139, 235 A.2d 706 (1967); and Grossman
v. Grossman, 234 Md. 139, 198 A.2d 260 (1964). Courts
are empowered to recognize and enforce separation and
property settlement agreements. See Eigenbrode v.
Eigenbrode, 36 Md. App. 557,373 A.2d 1306 (1977
Jackson v. Jackson, 14 Md. App. 263,286 A.2d 778 (1972);
Lewis v. Lewis, 256 Md. 45,259 A.2d 24 (1969); and
3 Nowhere in the Agreement or the April 11, 2000, stipulation
on the record can this Court determine that the parties agreed to split
their son’s college tuition. Therefore, the Plaintiffs alleged failure to
fulfill this obligation will not be addressed in this opinion.
A30
Reichhart v. Brent, 247 Md. 66,230 A.2d 326 (1967). A
separation agreement being contract between the parties is
subject to the same general rules governing other
contracts, and particular questions must be resolved by
reference to the particular language of the agreement. See
Pumphrey v. Pumphrey, 11 Md. App. 287, 273 A.2d 637
(1971); and Eigenbrode v Eigenbrode, 36 Md. App. 557,
373 A.2d 1306 (1977).
Courts of equity have the power to specifically .
enforce separation agreements. See Borotka v. Boulay, 268
Md. 244, 299 A.2d 803 (1973) (provision in separation
agreement binding husband to maintain in force life
insurance policies naming wife as primary beneficiary) and
Faller v. Faller, 247 Md. 631, 233 A.2d 807 (1967). A
court of equity will not require specific performance ofa
separation agreement as a matter of course, but will
evaluate the conduct of the parties, and circumstances and
equities of each particular case and will not exercise its
discretion to grant a remedy unless it will subserve the ends
of justice and the result of its assistance will be fair, just,
and reasonable. See Parkinson v. Parkinson, 42 Md. App.
650, 402 A.2d 129 (1979).
B. Effect on Marital Settlement Agreement on
Defendant's Discharge in Bankruptcy
Whether a debt or claim will be discharged in
bankruptcy is to be determined by the bankruptcy court. ~
11 U.S.C. § 501 ~. (2001) and 28 US.C. § 1334(b) (2001).
It logically follows that t] question of whether obligations
under a property settlement agreement between spouses is
discharged: in bankruptcy is to be determined in the same
manner and federal bankruptcy law is to be applied.. See
id.
A31
The Bankruptcy Code defines the term
"claim" as follows:
(A) right to payment, whether
or not such right is reduced to
judgment, liquidated,
unliquidated, fixed,
contingent, matured,
unmatured, disputed,
undisputed, legal, equitable,
secured or unsecured; or
(B) right to an equitable
remedy for breach of
performance if such breach
gives rise to a right to
payment, whether or not such
right is reduced to judgment,
liquidated, unliquidated,
fixed, contingent, matured,
unmatured, disputed,
undisputed, legal, equitable,
secured or unsecured[.]
11 U.S.C. § 101(5) (2001). See also In re Wang Zi
Cashmere Products. Inc., 202 B.R. 228,232 (Bankr. D.Md.
1996) (The term "claim 1s defined in the Bankruptcy Code
to include any right to payment and need not be fixed and
may be contingent or unliquidated.) The Fourth Circuit
Court of Appeals held in the case of Stewart Foods, Inc. v.
Broeker, 64 F.3d 141 (1995):
Congress intended to adopt the broadest possible
definition of the term "claim," so that
a bankruptcy case would deal with all of the debtor's
legal obligations. The House and Senate Reports to
the Bankruptcy Reform Act of 1978 state the
following about the definition of "claim":
A32
a a rn ae esac parma cs cuntmetinS domeenerne
By this broadest possible
definition, and by the use of
the term throughout the title
11, especially in subchapter I
of chapter 5, the bill
contemplates that all legal
obligations of the debtor, no
matter how remote or
contingent, will be able to be
dealt with in the bankruptcy
case. It permits the broadest
possible relief in the
bankruptcy court.
H.R. Rep. No.95-595, 95th Cong., Ist Sess. 309
(1977), reprinted in 1978 U.S.C.C.A.N. 5963, 6266;
S.Rep. No.95-989, 95th Cong., 2d Sess. 22 (1978),
reprinted in 1978 U.S.C.C.A.N. 5787,5808; see also
Johnson v. Home State Bank, 501 U.S. 78,83,111 S.
Ct. 2150,2153-54, 115 L.Ed. 2d 66 (1991)
("Congress intended by [the language of 11 U.S.C.
§ 101(5) to adopt the broadest available definition
of 'claim.""); Grady v. A.H. Robins Co., 839 F.2d
198,200 (4th Cir. 1988).
64 F.3d at 144.
In a number of cases, it has been held or recognized
that a property settlement between spouses is dischargeable
in bankruptcy, at least where it is truly or substantially a
property settlement agreement, and not an agreement for
alimony, support, or maintenance as excepted under 11
U.S.C. § 523 (a)(5).'' See Shacter v. Shacter, 467 F. Supp.
4 i1 U.S.C. 523 (a)(5) substantially provides that an individual
debt may be excepted from discharge if it is “to a spouse, former
spouse, or child of the debtor, for alimony to, maintenance for, or
support of such spouse cr child, in connection with a separation
agreement...” The statute goes on to qualify that such debt must
“actually [be] in the nature of alimony, maintenance or support” in
order to be nondischargeable as such. See id.
~ A33
64 (D. Md.), aff'd without published opinion, 610 F.2d 813
(4th Cir. 1979); In re Stone, 79 B.R. 633 (D. Md. 1987); In
re Coffman, 52 B.R. 667 (D. Md. 1985); and Melichar v.
Ost, 7 B.R. 951 (D. Md. 1980) (all dealing with the
bankrupt's obligation to make certain payments to former
spouse pursuant to a marital settlement agreement). It is the
creditor's obligation to raise the issue of
nondischargeability of debts to the bankruptcy court by
filing a complaint. See Fed. R. Bankr. P. 4004 and 4007. In
failing to raise an objection, the creditor waives the right to
object, and the claim may be subsequently discharged in
bankruptcy. See id.
Discussion
As suggested above, an equity court may require
specific performance of a marital settlement agreement
between spouses after a thorough evaluation of the conduct
and the circumstances and equities between the parties in a
particular case. In the case at hand, the Court must look at
the totality of the circumstances including the Agreement
and stipulation on the record between the parties, the
obligations under those agreements, most of which have not
been fulfilled, as well as the Defendant’s subsequent
discharge in bankruptcy ultimately relieving him of a
plethora of financial obligations. In viewing all of this, the
Court finds it fair, just, and reasonable to compel specific
performance of the outstanding obligations under the
parties' Agreement that have not been discharged by
Defendant’s bankruptcy.
According to bankruptcy law, if a claim means
"right to payment" as it is so broadly defined by Congress,
then it would follow that any pre-petition claim that
Plaintiff has against Defendant requests monetary relief or
could possibly result in a claim for monetary payment(s) is
unenforceable at this point based on Defendant's discharge
in bankruptcy. Therefore, this Court no longer has to
enforce any pre-bankruptcy obligations of the Defendant
which result in a monetary award or payment to the
Plaintiff. However, any obligations of the Defendant to the
A34
Plaintiff arising out of the Agreement and subsequent
stipulation on the record which are solely equitable and do
not foreseeably result in a compel specific performance of
certain outstanding property settlement obligations
remaining between the parties.
The bankruptcy court discharged Defendant for his
"various claims arising from and/or relating to the marriage
and separation of the parties" assigned to Plaintiff.
Defendant would like this Court to find that this broad
language covers any and all obligations that he may have
incurred by
Agreement, including those of transferring title and/or
interests in certain properties and of transferring p
personal property to his wife. The Court is not so inclined
to accept Defendant's interpretation.
While it is true that the bankruptcy court has
relieved the Defendant of his financial responsibilities,
certain provisions of the Agreement between the parties
still have some equitable value and are enforceable by this
Court. Those provisions dealing solely with the transfer of
Defendant's interest in certain property to Plaintiff are
clearly within the authority of this Court to compel
performance on. Likewise, the provision requiring
Defendant to return/transfer specific personal property
items to Plaintiff is within the Court's power to enforce.
Because these types of obligations are not within the
bankruptcy court's scope of a "claim" as a broadly defined
"right to payment," Plaintiff had no obligation to argue their
nondischargeability during the bankruptcy proceeding.
These obligations are equitable in nature and are purely
within the purview of this court to specifically enforce
within the divorce preceeding. In fact, it is clear from the
meeting of creditors transcript submitted to this Court by
the Plaintiff, that the bankruptcy trustee (as well as the
Defendant himself and his bankruptcy attorney) acted as if
A35
comunisinsius ma eeen cane seamen
the "transfer of property" obligations’ under the Agreement
had already taken place pursuant the authority of this Court
prior to the bankruptcy proceeding. The Defendant cannot
now be shielded by his bankruptcy discharge from fulfilling
obligations under the parties' Agreement that he
convincingly argued to the bankruptcy court had already
been fulfilled.
The Court finds that it is within its power to
specifically compel the Defendant to abide by those terms
of the Agreement as follows: 1) Defendant is to transfer his
one-third interest in the Towson townhouse to Plaintiff and
Angela Sherman as joint tenants; 2) Defendant shall
transfer his one-quarter interest in the parties' Pocono time-
share unit and all three Cocoa Beach time-share units to
Plaintiff;'> 3) Defendant must transfer/return the remaining
personal property items listed in Plaintiffs Exhibit 5 to
Plaintiff, excepting the hot tub and Rubbermaid storage
container which this Court simply does not define as patio
furniture; and 4) Defendant shall sign a gift certificate form
for and transfer the title of the 1997 Lincoln Town Car to
Plaintiff.
5 In using the term “transfer of property obligation,” this Court
is referring to those provisions of the Agreement which require a
transfer of interest in property between the parties. These provisions
include the transfer of Defendant’s interest in the Towson townhouse,
the Plaintiff's transfer of interest in the Bel Air property, both the
Defendant’s and the Plaintiff's transfers of interest in the time-share
units, the signing of the gift certificate form and transfer of
Defendant’s interest in the Lincoln Town Car, and the transfer/return
of personal property items to Plaintiff.
6 The plain language of the agreement that the Plaintiff is to
receive the Defendant’s interest in all three Cocoa Beach time-shares as
the agreement attempts to deal with all of the parties’ marital assets,
and it does not specifically refer to any type of division of the three
Cocoa Beach units owned by the parties’ and their children.
A36
As to the remaining financial obligations that
Defendant is alleged to owe Plaintiff under the Agreement,
this Court has no authority te compel performance based on
Defendant's discharge in bankruptcy. The other five
remaining obligations argued by Plaintiff at the hearing are
clearly "right to payment" obligations that were discharged
by the bankruptcy court. The following obligations of the
Defendant cannot be specifically enforced under the
Agreement as a result of his bankruptcy discharge: 1)
reimbursement for health insurance expenses for Plaintiff
and Christopher Sherman in the total amount of $385.11 to
Plaintiff; 2) reimbursement for Plaintiffs out-of-pocket
expenses due to Defendant's-time-share cancellation(s) in
the total amount of$6,717.45 to Plaintiff, 3) payment of
one- half of Defendant's settlement proceeds from his
resolved claim with his former employer, Physician
Support Services, LLC," to Plaintiff; 4) transfer of an
interest in Defendant's pension plan due to his non-
disclosure of his retirement benefit information to
Plaintiff:'5 and 5) payment of attorney's fees for Plaintiffs
7 From the testimony presented at the Court hearing, it is
estimated that this claim has a possible total value of $13,500.00.
8 It should be noted that in paragraph 10 of the Agreement, both
spouses agreed to a waiver of any interest in the other spouses’s
retirement benefits. This waiver was subsequently modified during the
April 11, 2000, stipulation on the record to be contingent on full
disclosure of his retirement benefits invalidates the waiver. This issue
has become moot based on this opinion and the Court’s finding that
any claim for an interest in Defendant’s retirement benefits is an
unenforceable “right to payment” claim based upon Defendant’s
discharge in bankruptcy.
A37
If Plaintiff wanted to argue that these five claims
arising out of the parties divorce and separation should
have been excepted as nondischargeable alimony,
maintenance and/or support under 11 U.S.C. 523 (a)(5),
then she clearly had the right to argue that position to the
bankruptcy court based on her participation and
representation by George Breschi, Esquire, in that
proceeding. As stated above, it is the creditor's obligation to
file a complaint as to nondischargeability within sixty days
of the date of the first meeting of creditors in an attempt to
have the bankruptcy court determine that a claim is
nondischargeable alimony, support and/or maintenance.
Since the Plaintiff failed to raise the issue during the
bankruptcy proceeding, she cannot now urge this Court to
view the claims as nondischargeable. The issue of whether
debts covered in a prior U .S. Bankruptcy Court case are
nondischargeable is clearly not within the equity court's
power to decide. Thus, the only authority that this court
may act on is the determination that all of Defendant's pre-
petition "right-to-payment" obligations, including those to
the Plaintiff, were clearly discharged by the bankruptcy
court.
The Court further finds that Defendant's remaining
argument that Plaintiffs Complaint should be dismissed for
her failure to join the parties' two adult children, Angela
and Christopher Sherman, in this lawsuit under Maryland
breaches of the Agreement invalidate this waiver and allow her to now
make a claim for her reasonable attorney’s fees incurred in this divorce
proceeding. This issue, too, has. become moot based on this opinion
and the Court’s finding that any claim for attorney’s fees is an
unenforceable “right to payment” claim based upon Defendant’s
discharge in bankruptcy.
A38
Rule 2-2111'’ is without merit. Defendant's transfer of
interest in the Towson townhouse neither impairs nor
- impedes Angela Sherman's interest in that property. In fact,
the parties’ stipulation on the record modifying the
Agreement actually has the effect of positively her interest
from one-third to one-half owner in the Towson property.
Likewise, as to the interest of Angela and Christopher in
the Pocono and three Cocoa Beach time-share units,
Defendant’s transfer of his one-quarter interest in those
units to Plaintiff in no manner impairs or impedes the
children’s interests in those same properties. The children
began with a one-quarter interest each in those same
properties, and will continue to have that same percentage
of interest, despite the transfer. Since it is evident neither
of the children's interests will be impaired or impeded as a
result of transfers resulting from specific enforcement of
the Agreement in this matter, the Defendant’s argument
that the children should be joined as necessary parties must
ultimately fail.
As a final note, the Court declines the invitation by
Plaintiff to award any type of punitive damages for
Defendant's noncompliance with the Agreement. Clearly,
both parties have to all of their obligations under the
Agreement for various reasons that are irrelevant to the
Court’s decision in this matter, and the Court does not find
that an award of punitive damages appropriate in this case.
- CONCLUSION
As to Plaintiff s Complaint, the Court finds that
there are several outstanding property settlement
10 Maryland Rule 2-211 requires parties to be joined “in the
action if in the person’s absence, (1) complete relief cannot be
accorded..., or (2) disposition of the action may impair or impede the
person’s ability to protect a claimed interest relating to the subject of
the action...”
A39
obligations that are specifically enforceable and
incorporates, but not merges mentioned provisions of the
Agreement, as modified by the parties' subsequent
stipulation on the record, into the parties Judgment of
Absolute Divorce.
Specifically, the Court finds that: 1) Defendant is to
transfer his one-third interest in the Towson townhouse to
Plaintiff and Angela Sherman as joint tenants in accordance
with paragraph 7 of the Agreement and the April 11, 2000,
modifications thereto; 2) Defendant shall transfer his one-
quarter interest in the parties' Pocono time-share unit and
all three Cocoa Beach time-share unit and all three Cocoa
Beach time-share units to Plaintiff'® in accordance with
paragraph 9 of the Agreement; 3) Defendant must
transfer/return remaining personal property items as listed
on Plaintiffs Exhibit 5 to Plaintiff in accordance with
paragraph 8A of the Agreement with the two above-listed
exceptions of the hot tub and Rubbermaid storage
container; 4) Defendant shall transfer the title and sign a
gift certificate form for the 1997 Lincoln Town Car to
Plaintiff in accordance with paragraph 8B of the
Agreement; 5) Plaintiff must transfer her interest in the Bel
Air property to the Defendant in accordance with paragraph
6 of the Agreement; 6) Plaintiff is to transfer her one-half
interest in the Orlando time-share unit to Defendant in
accordance with paragraph 9 of the Agreement; and 7)
Plaintiff and Defendant are required to sell the Cancun
time-share and split the proceeds equally in accordance
with the April 11, 2000, stipulation on the record.
11 The plain language of the agreement indicates that the
Plaintiff is to receive the Defendant’s interest in all three Cocoa Beach
time-shares as the agreement attempts to deal with all of the parties’
marital assets, and it does not specifically refer to any type of division
of the three Cocoa Beach units owned by the parties’ and their
children.
A40
LYNNE P. SHERMAN * IN THE
Plaintiff * CIRCUIT COURT
V. * FOR
LAWRENCE R. SHERMAN * HARFORD COUNTY
Defendant * Case No: 12-C-99-3055
1 * * ok oe
ORDER
The Circuit Court for Harford County having heard
arguments, taken testimony, considered the pleadings, and
issued a Memorandum Opinion, it is this 27 Day of July,
2001,
ORDERED as follows:
1. The Plaintiff, LYNNE P. SHERMAN, is
divorced absolutely from the Defendant,
LAWRENCE R. SHERMAN.
2. The Plaintiff, LYNNE P. SHERMAN, is grantea
the use of her maiden name, LYNNE P. TROUTWEIN.
3. The Defendant shall transfer his one-third interest
in the Towson townhouse to Plaintiff and Angela Sherman
as joint tenants in accordance with paragraph 7 of the
Agreement and the April 11, 2000, stipulated modifications
thereto;
4. The Defendant shall transfer his one-quarter
interest in the parties' Pocono time-share unit and all three
Cocoa Beach time-share units to Plaintiff in accordance
with paragraph 9 of the
Agreement
5. The Defendant shall transfer/return the remaining
personal property items as listed on Plaintiff s Exhibit 5 to
Plaintiff in accordance with paragraph 8A of the Agreement
except for the Hot tub and Rubbermaid storage container.
A41
ae
6. The Defendant shall sign a gift certificate form
for and transfer the title of the 1997 Lincoln Town Car to
Plaintiff in accordance with paragraph 8B of the
Agreement.
7. The Plaintiff shall transfer her interest in the Bel
Air property to the Defendant in accordance with paragraph
6 of the Agreement.
8. The Plaintiff shall transfer her one-half interest in
the Orlando time share unit to Defendant in accordance
with paragraph 9 of the Agreement.
9. The Plaintiff and Defendant shall sell the Cancun
time share and split the proceeds equally in accordance with
the April 11, 2000, stipulation on the record.
10. The parties' Marital Settlement Agreement dated
June 30, 1999, with the exception of the provisions
resulting in claims which were discharged by the
Defendant's bankruptcy as more fully described in the
attached Memorandum Opinion, are to remain in full force
and effect and to be incorporated, but not merged into the
parties’ Judgment of Absolute Divorce.
IT IS SO ORDERED THIS 24 DAY OF JULY,
2001.
“¢s/ oe
MAURICE W. BALDWIN, JR., Judge
True Copy:
Test: Charles G. Hiob, II, Clerk
By: “s/ ws
Deputy Clerk
cc: Henry W. Stewart, Esq.
Law Offices of Henry W. Stewart, P .A.
209 Courtland A venue
Towson, Maryland 21204
A42
George A. Breschi, Esq.
409 Washington A venue, Suite 600
Towson, Maryland 21204
Jonathan S. Greene, Esq.
Howanski & Greene
410 Washington Avenue, Suite 803
Towson, Maryland 21204
A43
This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.