Petition for Writ of Certiorari — Dennis v. Dennis, 115 S. Ct. 732 (1995) (No. 94-837)

* Supreme Cringe u.s

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94 837 ocr 11 1994

QEFICE OF THE CLERK

NO.

IN THE UNITED STATES SUPREME COURT

OCTOBER 1994 TERM

LEBARON DENNIS,

PETITIONER

Vv.

AUDREY DENNIS,

RESPONDENT

PETITION FOR WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

PETITION FOR WRIT OF CERTIORARI

ARTHUR J. ROSSI, UR.

LAW OFFICES OF MARTIN W. SEIDLER

11107 Wurzbach Road, Suite 504

San Antonio, Texas 78230

(210) 694-0300

(210) 690-9886 (TELEFAX)

ATTORNEY OF RECORD

PAUL ROSENBAUM

ROSENBAUM LEGAL SERVICES

6326 Sovereign Drive, Suite 140

San Antonio, Texas 78230

(210) 344-7716

q ° ne

PEED RTS ty Ra AARC ECE AM RENIN TS AYR PONG Be TITS

i

QUESTIONS PRESENTED FOR REVIEW

1. Whether the Court of Appeals for

the Fifth Circuit applied the correct

standard for a review of a dischargeability

question under Title 11.

2. Whether the doctrine of collateral

estoppel should be applied ina

dischargeability case arising out of a debt

created by a divorce proceeding.

SAINT KCK Hag EE tS

Sn Mee eYY

Wea

ii

PARTIES TO THE PROCEEDING

Audrey H. Dennis:

Respondent

LeLaurin, Emmett & Kessler, L.L.P.:

Counsel for Respondent

Marita Montgomery Emmett:

Counsel for Respondent

Louis A. LeLaurin, III:

Counsel for Respondent

LeBaron Dennis:

Petitioner

Margaret Dennis:

Spouse of Petitioner

Rosenbaum Legal Services:

Counsel for Petitioner

Paul W. Rosenbaum:

Counsel for Petitioner

Wesley B. Huysinga:

United States Trustee

Marion A. Olson, Jr.:

_—"

OE EEE A EA EE ND a EON

iii

TABLE OF CONTENTS AND TABLE OF AUTHORITIES

A. TABLE OF CONTENTS

QUESTIONS PRESENTED FOR REVIEW........ i

PARTIES TO THE PROCEEDING............ 1i

A. TAME OF COMTMEO sc ccc cccccces iii

B. TABLE OF AUTHORITIES............. Vv

Nee er er 1

STATUTES SET OUT VERBATIM............. 2

ee a ee ee ee 7

JURISDICTIONAL OF ORIGINAL COURTS..... p

Pe, PER EVURECETEU CL CRT ECE ET Tee 13

CAIN « 6 'c 6s FOS Sew R Odea a eben eee 41

Appendix A: Opinion of the Court

of Appeals for the

PASCM CAPGUSS . ccc aa 2a

Appendix B: District Court Order

GR BIGGS 6 ec cca eas 27a

Appendix C: District Court Judgment

| eee ee 47a

Appendix D: Bankruptcy Court

PUIEING 6 vc ccec seen 50a

iv

Appendix E: Bankruptcy Court Oral

Findings and

Conclusions..... ee S68 |

Appendix F: State Court |

POR sc cece weeees 65a |

Appendix G: Court of Appeals |

Judgment Aten ieee wes 69a

B. F

CASES: PAGE(S)

Barrientes v. Harlandale Ind.

School Dist., 764 S.W.2d 28

(Tex. App.-- San Antonio 1989,

WS Te Wo. 6e bee adedebuceeass 29

Bell v. Moores, 832 S.W.2d 749 (Tex.

App.--Houston [14th Dist.] 1992,

WERE GOED 444 0b 6 eee eb A ecco wes 30

Bonniwell v. Beech Aircraft Corp.,

663 S.W.2d 816 (Tex. 1984)...... 23

Carey Lumber Co. v. Bell, 615 F.2d

STO: Soe Gale BOGE 6s eee Cecveees 27

Davidson v. Davidson (Matter of

Davidson), 947 F.2d 1294 (5th

cD Te De eee 16, 17

Davidson, In re, 133 BR 795 (ND.

, ot | | Perer reer Ter Tee 16

Dennis v. Dennis, 25 F.3d 274 (Sth

Cig. 2906) . «s+. 6, 8 3, 10, 13, 24

Forbis v. Trinity Universal Ins.,

833 S.W.2d 316 (Tex. App.--

Ft. Worth 1992 error withdrawn) .29

vi

CA : - Continued PAGE(S)

Gebhardt v. Gebhardt, 53 B.R. 113

Cs ae Peewee reTrerre ee ia, i3

Grogan v. Garner, 111 S.Ct. 654

Halpern, In re, 810 F.2d 1061 (11th

as & ey 3 SG ae ae ae ee ee 28

Johnson, In re, 162 B.R. 130 (S.D.

eo ee) a ae a ee 12, 18

Joseph, In re, 16 F.3d 86 (5th

Cae Swe 6 ee es ee ee 8, 9

Kaspar Wire Works, Inc. v. Leco

Enginneering and Machine, Inc.,

575 F.2d $30 (Sth Cir. 1978)....26

Klingman v. Levinson, 831 F.2d 1292

eo 2 ee gg Pee err re 28

Lacy, In re, 947 F.2d 1276 (Sth Cir.

J.M. Muniz, Inc. v. Mercantile Texas

Credit Corp., 833 F.2d 541 (Sth

ec ee Pe rer rr ee ee 23

ne Te ree es

vii

CASES: - Continued PAGE(S)

Murray v. Murray, 611 S.W.2d 172,

174 (Tex. Civ. App.--

El Paso, nO writ)......+--eeeeee 30

Schuler, Matter of, 722 F.2d 1253

(Sth Cir. 1984)......--- 20, 21, 22

Sheerin v. Davis (Matter of Davis),

3 F.3d 113 (Sth Cir, 1993)..20, 25

Texas Real Estate Com’n v. Nagle,

167 S.N.2d 691 (Tex. 1989)...... 29

Tilley v. Jessee, 789 F.2d 1074

(4th Cir, 1986)..... 10, 11, 12, 27

United v. McClelland (Matter of

Troy Dodson Constr. Co.),

993 F.2d 1211, 1214 (Sth

ro eee eee ee ee 33

White v. World Finance of Meridan,

Inc., 653 F.2d 147 (Sth Cir.

Yeates v. Yeates, 807 F2d 874

(10th Cir. 1986)....-.--- orrre 10, 27

viii

STATUTES AND RULES

12 U.8.C.A. & SSS(A) (HS) . ce cvvves 25, 32

28 U.8.C. 9 S7OOsi s cveisves éeends as, 33

Restated (Second) of Judgments,

§ 27, Comment (e) (1982)......... 29

NO.

IN THE UNITED STATES SUPREME COURT

OCTOBER 1994 TERM

LEBARON DENNIS,

PETITIONER

Vv.

AUDREY DENNIS,

RESPONDENT

PETITION FOR WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

PETITION FOR WRIT OF CERTIORARI

Petitioner, Lebaron Dennis,

respectfully petitions this Court for a writ

of certiorari for review of the judgment and

opinion of the United States Court of Appeals

For the Fifth Circuit.

JURISDICTION:

The Petitioner files this Application

for Writ of Certiorari to the United States

Court of Appeals for the Fifth Circuit from a

decision rendered on July 13, 1994 in the

case of Dennis v. Dennis (In re: Dennis), 3

2

F.3d 274 (Sth Cir. 1994). This Court has

jurisdiction over this application pursuant

to 28 U.S.C. § 1254.

STATUTES SET OUT VERBATIM

28 U.S.C. § 1738 provides:

State and Territorial

statutes and judicial proceedings;

full faith and credit

The Acts of the legislature

of any State, Territory or

Possession of the United States,

or copies thereof, shall be

authenticated by affixing the seal

of such State, Territory or

Possession thereto.

The records and judicial

proceedings of any court cf any such

State, Territory or Possession, or

copies thereof, shall by proved or

admitted in other courts within the

United States and its Territories and

Possessions by the attestation of the

clerk and seal of the court annexed, if

3

a seal exists, together with a

certificate of a judge of the court

that the said attestation is in proper

form.

Such Acts, records and judicial

proceedings or copies thereof, so

authenticated, shall have the same full

faith and credit in every court within

the United States and its Territories

and Possessions as they have by law or

usage in the courts of such State,

Territory or Possession from which they

are taken.

28 U.S.C. § 1254, provides:

Courts of appeals;

certiorari; certified questions

Cases in the courts of

appeals may be reviewed by the

Supreme Court by the following

methods:

(1) By writ of certiorari

granted upon the petition of any

party to any civil or criminal

‘

case, before or after rendition of

judgment or decree;

(2) By certification at any

time by a court of appeals of any

question of law in any civil or

criminal case as to which

instructions are desired, and upon

such certification the Supreme

Court may give binding

instructions or require the entire

record to be sent up for decision

of the entire matter in

controversy.

11 U.S.C. § 523 (a) (5) provides:

§ 523. Exceptions to Discharge.

(a) A discharge under

section 727, 1141, 1228(a),

1228(b), or 1328(b) of this title

does not discharge an individual

debtor from any debt---

(S) to a spouse,

former spouse, or child

of the debtor, for

5

alimony to maintenance

for, or support of such

spouse or child, in

connection with a

separation agreement,

divorce decree or other

order of a court of

record, determination

made in accordance with

State or territorial

law by a governmental

unit, or property

settlement agreement,

but not to the extent

that---

(A) such debt is

assigned to another

entity, voluntarily, by

operation of law, or

otherwise (other than

debts assigned pursuant

to section 402(a) (26)

of the Social Security

6

Act, or any such debt

which has been assigned

to the Federal

Government or to a

State or any political

subdivision of such

State); or

(B) such debt

includes a liability

designated as alimony,

maintenance, or

support, unless such

liability is actually

in the nature of

alimony, maintenance,

or support;

id Naa ARS a dca abana Nini ncalse stones ams

7

STATEMENT OF THE CASE

By Final Decree Of Divorce dated July

23, 1986, the Debtor and Audrey Dennis

obtained a divorce in Cause No. 85-CI-12933

in the 225th Judicial District Court of Bexar

County, Texas. The Final Decree Of Divorce

included a provision that Audrey Dennis would

receive 50% of the military retirement

benefits of LeBaron Dennis.

After the Debtor and Audrey Dennis

divorced, the Debtor agreed to pay income

taxes on all military retirement benefits

received by Audrey Dennis. The Debtor sought

to have the obligation to pay taxes

discharged in the bankruptcy court. Audrey

Dennis contended that the obligation to pay

taxes is nondischargeable under § 523(a) (5)

of the Bankruptcy Code, 11 U.S.C.A. §

523(a) (5), because it is allegedly a debt

"for alimony to, maintenance for, or support

of" a former spouse. The Debtor argued that

the agreement to pay taxes was intended to

provide support or maintenance to Audrey

Dennis.

The Debtor testified that he agreed to

pay income taxes only to insure that, should

Audrey Dennis predecease him, the Debtor

would then receive the military retirement

benefits currently paid to Audrey Dennis.

The military retirement benefits were to be

paid into a constructive trust in the name of

the Debtor, and then one-half of the benefits

would be transferred to Audrey Dennis. The

Debtor agreed to pay all taxes on the

military retirement benefits paid into the

trust, because the Debtor believed that under

this arrangement he would receive 100% of the

military retirement benefits should Audrey

Dennis predecease him. The Debtor

subsequently discovered that it was not

necessary to create a constructive trust in

order to protect a reversionary interest in

the military retirement benefits.

The Debtor’s agreement to pay income

taxes was contained in three letters prepared

after the entry of the Final Decree Of

9

Divorce. The Debtor contends that the three

letters contain an agreement to pay taxes

that is separate and apart from any agreement

contained in the Final Decree Of Divorce.

A judgment was entered on January 3,

1992, in a state court action filed by Audrey

Dennis against the Debtor, Cause No. 198503

("State Court Action") in County Court at Law

Number 8 of Bexar County, Texas, for failure

to pay the income taxes. The State Court

Judgment contains the following findings:

The Court finds that the Dr.

LeBaron Dennis breached his

agreement to assume responsibility

for paying the tax on the gross

pension benefit of his income and

to report it as his income and pay

all taxes due thereon.

The Court finds that the

agreement was part of the division

of community property between the

parties and did not constitute nor

should it be interpreted to be any

form of spousal support, alimony

or child support.

The State Court Judgment was a consent

judgment signed by the attorney for Audrey

Dennis.

On January 7, 1992, the Debtor filed a

10

case under Chapter 7 of Title 11 of the

United States Code, in the United States

Bankruptcy Court ("Eankruptcy Court") for the

Western District of Texas, San Antonio

Division, which was docketed under case no.

92-50122.

On February 19, 1992, the Debtor as

Plaintiff filed in the Chapter 7 Case

Adversary Proceeding Number 92-5033

("Adversary Proceeding") naming Audrey Dennis

as Defendant. The Debtor sought in the

Adversary Proceeding to obtain a

determination that his obligation to pay

income taxes was dischargeable in the Chapter

7 Case. Audrey Dennis filed counterclaims in

the Adversary Proceeding alleging that the

obligation to pay income taxes was

nondischargeable under §§ 523(a) (4) and (5).

A trial was held in the Adversary

Proceeding on October 19, 1992, and the

Bankruptcy Court ruled that the debt was

nondischargeable under § 523(a)(5). The

Bankruptcy Court rejected the argument of

11

Audrey Dennis that was based on § 523(a) (4).

On October 26, 1992, the Bankruptcy

Court signed the Judgment ("Adversary

Proceeding Judgment") in the Adversary

Proceeding. On November 6, 1992, the Debtor

filed in the Adversary Proceeding a Motion

For Reconsideration Or, In The Alternative,

To Amend Judgment ("Motion For

Reconsideration"). On December 18, 1992, the

Bankruptcy Court signed its Order Denying

Motion by which the Bankruptcy Court denied

the Motion For Reconsideration.

The Debtor then perfected an appeal to

the United States District Court ("District

Court") for the Western District of Texas,

San Antonio Division. On August 12, 1993,

the District Court signed an Order ("District

Court Order") that reversed and rendered the

Adversary Proceeding Judgment of the

Bankruptcy Court. Under the District Court

Order, the “obligation of LeBaron Dennis to

Pay taxes on pension benefits" was

discharged.

12

Audrey Dennis perfected an appeal to

see Ale aba Tic Reel a

the United States Court of Appeals for the

Fifth Circuit from the decision of the

District Court. The Court of Appeals

reversed and rendered judgment in favor of

Audrey Dennis on July 13, 1994 in the case

styled In the Matter of LeBaron Dennis (In

re: Dennis), 25 F.3d 274 (Sth Cir. 1994).

LeBaron Dennis now seeks a Writ of

Certiorari to the United States Court of

Appeals for the Fifth Circuit for a review of

the decision.

13

JURISDICTION OF ORIGINAL COURTS

The United States Bankruptcy Court for

the Western District of Texas had federal

subject matter jurisdiction pursuant to 28

U.S.C. §§ 151, 157 and 1334. The United

States District Court and the United States

Court of Appeals for the Fifth Circuit had

federal subject matter jurisdiction pursuant

to 26 U.8.C. § 1568.

ARGUMENT

The Petitioner seeks a Writ of

Certiorari to the United States Court of

Appeals for the Fifth Circuit because the

Court of Appeals has rendered a decision in

conflict with a decisions of another court of

appeals.

3. Whether the Court of Appeals for

the Fifth Circuit applied the

correct standard for a review of a

dischargability question under

Title 11.

In the decision of Dennis v. Dennis, 3

F.3d 274 (Sth Cir. 1994), the United States

Court of Appeals for the Fifth Circuit

rejected the application of the doctrine of

collateral estoppel and held that the factors

announced in In re: Joseph, 16 F.3d 86 (Sth

Cir. 1994) should be the factors considered

by a bankruptcy court in determining whether

payments characterized clearly and

unambiguously in a divorce decree as property

division should be deemed as "in the nature

of support" for purpose of dischargeability

under federal bankruptcy law.

In the Dennis case, a judgement of the

courts of the State of Texas was under review

for determination of whether the debt created

by the judgment was dischargeable. In the

Dennis case, the Court of Appeals stated

described the judgment to be reviewed for

dischargability as follows:

The Texas county court, referring to

ee ee eee ene

15

language in the divorce decree, found that

LeBaron’s agreement to pay the taxes ‘was

part of the division of community property

between the parties and did not constitute

nor should it be interpreted to be any form

of spousal support, alimony or child

support’." In re: Dennis, 3 F.3d at 277.

The Court of appeals further noted that

"This language mirrors, almost verbatim, the

language in the divorce decree." Id.

In reversing and rendering judgment in

favor of the appellant, the Court of Appeals

rejected the Petitioner’s argument that the

doctrine of collateral estoppel applies to

the case and determined that the

considerations that should guide the court in

determining the issue of dischargeability are

the factors that the court announced in In

re: Joseph, 16 F.3d 86 (Sth Cir. 1994).

The court, citing In re: Joseph, supra,

then announced the relevant considerations

that bankruptcy courts should review in

deciding whether a divorce obligation

16

constitutes alimony, maintenance or support:

" The considerations include the parties’

disparity in earning capacity, their relative

business opportunities, their physical

condition, their educational background,

their probable future financial needs, and

the benefits each party would have received

had the marriage continued." In re: Dennis,

3 F.3d at 279 (citing In re: Joseph, 16 F.3d

at 88).

This decision’ squarely conflicts with

the decision of the United States Court of

Appeals for the Tenth Circuit in Yeates v.

Yeates, 807 F.2d 874 (10th Cir. 1986), and of

the United States Court of Appeals for the

Fourth Circuit in Tilley v. Jessee, 789 F.2d.

1074 (4th Cir. 1986).

In the Yeates case, the Court of

Appeals for the Tenth Circuit was presented

with the question of the correct legal

standard for a bankruptcy court to determine

whether a debt arising from a divorce is

dischargeable.

Cn Ree cl

17

In Yeates case, the Debtor spouse was

sued by his ex-wife claiming that an

agreement to make payments on a mortgage was

in the nature of support. 807 F.2d at 876.

The agreement provided, inter alia, that ".

the parties agree to complete a loan with

Transamerica Financial Services in the amount

of $6,000.00 to be secured against the above

home and shall be paid by [debtor] in

consideration of Plaintiff waiving her right

to alimony. Id.

The Tenth Circuit held that the initial

inquiry is "to ascertain the intention of the

parties at the time they entered the

stipulation or property settlement

agreement." 807 F.2d at 878.

The Court further determined that where

the parties have entered a written agreement,

that "[a] written agreement between the

parties is persuasive evidence of intent.

Tilley v. Jessee, 789 F.2d 1074, 1077 (4th

Cir. 1986). Thus, if the agreement between

the parties clearly shows that the parties

18

intended the debt to reflect either support

or a property settlement, then that

characterization will normally control. On

the other hand, if the agreement is

ambiguous, then the court must determine the

parties’ intentions by looking to extrinsic

evidence. (citations omitted)." Yeates,

supra at 878.

In Tilley v. Jessee, 789 F.2d 1074 (4th

Cir. 1986), the Court of Appeals was

presented with the question of whether a

written agreement between the parties is non-

dischargeable alimony. Id. at 1077.

The Fourth Circuit reviewed the

settlement agreement and the record on

appeal, and held that the record was devoid

Dibicaeinntiass emo hea ot

of any evidence that the agreement was

anything more than the parties expressed in

the original agreement. Therefore, since the

intent of the parties was expressed clearly

in the original agreement, the agreement

would be enforced as written. Jd. at 1077-78.

This is clearly the view of other

19

courts. See In re Johnson, 162 B.R. 130

(S.D.Tex. 1993); Gebhardt v. Gebhardt, 53

B.R. 113 (W.D.Mo. 1985).

In Gebhardt v. Gebhardt, 53 B.R. 113

(W.D.Mo. 1985), the District Court for the

Western District of Missouri held in the case

of a settlement agreement attached to the

divorce of the parties as follows:

"However, the critical issue is to

ascertain what the parties intended, and that

intention is to be arrived at through the

processes of construction and interpretation,

not by reformation of the instrument."

(emphasis in original). Id. at 115.

The Gebhardt Court further noted:

"While the Bankruptcy Court may look to

the circumstances surrounding the creation of

the liability, if the divorce decree is so

unambiguous that the intent of the civil

court is abundantly clear, this Court cannot

Overlook its purpose by relying on such

factors as the parties physical health or her

need for present or future support. (citation

20

omitted). It is understandable that the |

Bankruptcy Court was sympathetic to |

Appellee’s disability, but it cannot ignore

the plan language of the separation

agreement." Id.

The decision by the Dennis Court of

Appeals to decide the issue of whether the

characterization of "property settlement"

‘should be construed "in the nature of

support" under 11 U.S.C. § 523 (a)(5), is

contrary to the decisions of other circuits

that have either held that a clearly

expressed agreement should not be reformed by

the federal courts or that factors extrinsic

to the agreement should not be considered

unless the court determines first that the

agreement is ambiguous.

In the Dennis case, the parties entered

into a written agreement related to their

divorce. Subsequently, the nondebtor, ex-

spouse filed a lawsuit against the debtor

seeking a judgment for damages arising out of

the divorce judgment.

21

In an agreed consent judgment, the

Court of Bexar County, State of Texas,

entered judgment against the debtor with the

specific language contained in the judgment

indicating that the judgment "‘was part of

the division of community property between

the parties and did not constitute nor should

it be interpreted to be any form of spousal

support, alimony or child support’." Dennis

at arr.

The Court of Appeals in rejecting the

application of the doctrine of collateral

estoppel did not adopt the standard of either

the Fourth Circuit in Tilley or the Tenth

Circuit in Yeates. Rather the Fifth Circuit

determined that objective standards outside

the judgment apply in the determination of

whether a clearly expressed written intent of

the parties to the agreement.

The Fifth Circuit has clearly reformed

an agreement by applying factors extrinsic to

the agreement to determine that a debt

Characterized as a property division by

22

agreement of the parties is in fact a debt in

the nature of support. The decision rests on

these objective factors and does not rest on

the subjective intent of the parties in order

to determine their true meaning.

However, the Fifth Circuit has

recognized the application of an estoppel

doctrine to determine that a debt is

nondischargeable. In the case of In re:

Davidson, 947 F.2d 1294 (Sth Cir. 1991), the

Court of Appeals for the Fifth Circuit did

not apply the In re: Joseph factors in favor

of the "quasi-estoppel" doctrine.

In an detailed analysis of the facts

surrounding the execution of a divorce

agreement and the intent of the parties at

the time of divorce, the United States

District Court for the Northern District of

Texas affirmed a bankruptcy court ruling that

payments designated as alimony were in fact a

property division and dischargeable. In re:

Davidson, 133 B.R. 795 (N.D. Tex. 1990).

On appeal, the Fifth Circuit Court of

ee

23

Appeals reversed the decision of the district

court holding that as a matter of law, a

debtor could not discharge an obligation to a

former spouse, which was characterized as

alimony, where the debtor had treated the

obligation as alimony for tax purposes. In

re: Davidson, 947 F.2d 1294, 1296-97 (Sth

Cir. 1991). The Fifth Circuit relied on the

doctrine of "quasi-estoppel", and reasoned as

follows:

To allow a spouse to set up an

intricate and unambiguous divorce settlement,

carefully distinguishing certain periodic

payments, called alimony, from the division

of the marital property, and consistently

taking advantage of this characterization for

tax purposes, only then to declare that the

payments truly represented a division of

property, would be a legal affront to both

the bankruptcy and tax codes. To uphold the

discharge of those payments in bankruptcy

would reward an admitted manipulation

tantamount, at best, to deception. Id.

24

Yet by not recognizing clearly

expressed, unambiguous language of the

judgments and divorce settlement agreements

as controlling the intent of the parties at

the time of divorce, the Court of Appeals for

the Fifth Circuit has opened the door for the

deceptions that exist. See In re: Johnson,

162 B.R. 130, 135 (Bankr.S.D.Tex 1993)

(holding that the clear obligations ina

divorce decree that establish the debtor’s

liability to his ex-spouse as maintenance and

support should not be varied because the

parole evidence rule and the doctrine of

integration exist "so that parties may rely

on the enforcement of agreements that have

besn reduced to writing").

In the Dennis case, the Fifth Circuit

rejected the clear wording of the document

and further rejected the application of

collateral estoppel and judicial estoppel to

preclude the creditor spouse from asserting

that the clear language of the agreement

should be construed as “in the nature of

25

support". In re: Dennis, at 277-78.

This rejection opens the door to the

manipulation that the Davidson court found so

repugnant as to reject all of the factors

that were considered relevant by the

bankruptcy court and the district court

because without the safeguards of collateral

and judicial estoppel, the creditor spouse

could indeed negotiate a settlement based on

property division only to assert ina

bankruptcy proceeding commenced by a debtor

spouse that the negotiated property division

was actually support and not a property

division as agreed, negotiated and clearly

characterized.

There are no judicial safeguards to the

changes in a clearly expressed, unambiguous

agreement between the parties. The

application of the doctrine of collateral

estoppel would provide the judicial

safeguards by preventing a litigant from

arguing that a dischargeable agreed property

settlement is in fact "in the nature of

26

support."

2. Whether the doctrine of collateral

estoppel should be applied ina

dischargeability case arising out

of a debt created by a divorce

proceeding.

B. APPLICATION OF DOCTRINE OF

COLLATERAL ESTOPPEL

By applying the doctrine of collateral

estoppel, a bankruptcy court can be obligated

to accept as binding the findings and

conclusions entered in a state court action,

and accept the representa:ions of the parties

on the characterization of the property. The

application of collateral estoppel would

clearly prevent the parties from changing

their position on the character of the award

of property by a state court and would

prohibit a federal court from reforming a

clearly worded judgment.

The Fifth Circuit has recognized that

collateral estoppel may be invoked to bar

relitigation of issues that were decided ina

nonbankruptcy court. See Sheerin v. Davis

(Matter of Davis), 3 F.3d 113 (Sth Cir.

27

1993); Matter of Schuler, 722 F.2d 1253, 1255

(Sth Cir. 1984). The Fifth Circuit in Schuler

noted that collateral estoppel could be used

to establish specific facts even though the

bankruptcy court had jurisdiction to

determine the ultimate question of

dischargeability. Further, this Court has

reaffirmed the proposition that collateral

estoppel can be applied in dischargeability

actions. See Grogan v. Garner, 498 U.S. 279,

111 €.Ct. 654, 656 n.11 (1991).

In Schuler, the Fifth Circuit stated

the standards for collateral estoppel. In

Schuler the Fifth Circuit noted:

The applicability of

collateral estoppel thus stated is

in accord with the general test

for collateral estoppel in this

circuit.

This Court has

stated that the three

traditional

requirements for the

application of the

doctrine of collateral

estoppel are: (i) the

issue to be precluded

must be identical to

that involved in the

prior action, (ii) in

28

the prior action the

issue must have been

actually litigated, and

(iii) the determination

made of the issue in

the prior action must

have been necessary to

the resulting judgment.

White v. World Finance of

Meridian, Inc., 653 F.2d 147, 151

(Sth Cir. 1981). Schuler, 722 F.2d

at 1256 n.2; see Davis, 3 F.3d at

114.

In the case sub judice the Debtor meets

the three standards for application of

collateral estoppel. These are as follows:

(1) The issue before the bankruptcy

court under 11 U.S.C. § 523 (a)(5) is the

intent of the parties that the division of

the property not be interpreted to be spousal

support or alimony, which is the issue before

the divorce court. This is the same issue

before the state county court.

(2) The consent given by the parties

in the judgment in county court that

establishes the liability constitutes a

Pe ee eS ee ee ee Cee Oe

29

stipulation that the payments were in fact a

property division and not for spousal

support. Therefore, the character of the

division of property establishes the fact of

the character of the property division

without the need for further litigation to

reform the agreement.

(3) The finding that the agreement

was not spousal support or alimony was also

essential to the State Court Judgment to

clarify the nature of the obligation of the

Debtor.

The District Court in the case sub

judice determined that under the Full Faith &

Credit Act, 28 U.S.C. § 1738, Texas law on

collateral estoppel was applicable. The

language under Texas law and in Schuler

describe essentially similar standards. The

District Court enumerated the elements for

collateral estoppel under Texas law.

Under Texas law, a party

seeking to invoke the doctrine of

collateral estoppel must

establish: (1) that the facts

sought to be litigated in the

30

second action were fully and

fairly litigated in the prior

action; (2) that those facts were

essential to the judgment in the

first case, and (3) the parties

were cast as adversaries in the

first action. Bonniwell v. Beech

Aircraft Corp., 663 S.W.2d 816,

818 (Tex. 1984) cited in J.M.

Muniz. Inc. v. Mercantile Texas

Credit Corp., 833 F.2d 541, 544

(Sth Cir. 1987).

The standards under Texas law and

federal law are essentially the same.

_(1) THE JUDGMENT CLEARLY EXPRESSED

THE INTENT OF THE PARTIES

In the opinion, the Fifth Circuit

quoted the State Court Judgment that

Petitioner’s agreement to pay the taxes "’was

part of the division of community property

between the parties and did not constitute

nor should it be interpreted to be any form

of spousal support, alimony or child support.

‘" In re: Dennis, 3 F.3d at 277.

The Court of Appeals further noted that

"This language mirrors, almost verbatim, the

language in the divorce decree." Id.

The language of two separate judgments

31

courts of the State of Texas have determined

that the parties have agreed to a

determination that the payments due by the

debtor were (and are) a property division and

not support.

This clear, unequivocal manifestation

of the intent of the parties is the exact

same issue that must be decided by the

bankruptcy court under 11 U.S.C. § 523

(a) (5S).

(2) COLLATERAL ESTOPPEL HAS BEEN

LI CASES

INVOLVING CONSENT JUDGMENTS

Despite the requirement that a finding

be “actually litigated," courts have accorded

collateral estoppel effect to findings in

consent judgments entered in state court.

Collateral estoppel can be applied to a

consent judgment to which a party has agreed.

Consent judgments by their nature

relieve the parties of any obligation to

present evidence to the court. Furthermore,

the Bankruptcy Court did receive the State

Court Judgment and Plaintiff’s Original

32

Petition from the State Court Action, which

constitute sufficient evidence.

In Davis, 3 F.3d at 115, the court

considered only court opinions and jury

questions in order to give a preclusive

effect to a state decision. In relying on

Grogan, the Davis court noted that the

Supreme Court recognized the application of

collateral estoppel where the plaintiffs used

the complaint, the jury instructions, the

jury verdict, the district court judgment,

the appellate court opinion, anda

transmittal letter.

In In re Lacy, 947 F.2d 1276 (Sth Cir.

1991), a case involving dischargeability, the

Fifth Circuit accorded collateral estoppel

effect to an agreed judgment in state court.

ee ee ef OP ee -

The Fifth Circuit in Lacy referred to the

"Drecise facts" in the state court judgment

and commented:

In Kaspar Wire Works, Inc. v. Leco

Engineering and Machine, Inc., 575

F.2d 530, 540 (Sth Cir. 1978), we

explained that "when determining

the effect to be given a decree

33

entered by consent of the parties,

consideration is to be given their

intention with respect to the

finality to be accorded the decree

reflected by the record and the

words of their agreement." Here,

the intention manifested by the

words of the state court judgment

is clear. That intention

controlled the subsequent

bankruptcy proceeding.

Lacy, 947 F.2d at 1277-78. Similarly, the

words in the State Court Judgment should

control the interpretation of the intent of

the parties in the case sub judice. See

Yeates v. Yeates, 807 F.2d 874 (10th Cir.

1986), Tilley v. Jessee, 789 F.2d 1074 (4th

Cir. 1986).

In Carey Lumber Co. v. Bell, 615 F.2d

370 (Sth Cir. 1980), the Fifth Circuit

adopted an opinion of the district court in

which the district court ruled that a

bankruptcy court could determine

dischargeability by considering factual

findings in a consent judgment in state

court. The court noted that the consent

judgment contained recitations of findings.

Similarly, the State Court Judgment in

34

the Dennis case contains specific findings.

The rejection of the use of collateral

estoppel by the Dennis Court is contrary to

decisions in other circuits where collateral

estoppel has been applied in dischargeability

cases involving consent judgments.

In Klingman v. Levinson, 831 F.2d 1292

(7th Cir. 1987), the defendant in the state

court had stipulated that he disregarded hie

fiduciary duties as a trustee of a trust and

ee Le

had, through misappropriation and

defalcation, allowed or caused the

dissipation and loss of the trust corpus and

income. The Seventh Circuit applied the

doctrine of collateral estoppel, and held

ba ras at

that this stipulation from the consent

judgment could be used against the defendant

in a dischargeability action in bankruptcy

court. See also In re Halpern, 810 F.2d 1061

(llth Cir. 1987) (In a dischargeability

action, collateral estoppel was applied

against a party who admitted in a consent

judgment facts concerning the party’s

35

misrepresentations, fraudulent deceit, and

willful, malicious and intentional

conduct.).

The District Court in its District

Court Order also explained that collateral

estoppel is applied to consent judgments

under Texas law.

Texas courts apply § 27 of

the Restatement (Second) of

Judgments. See Texas Real Estate

Com’‘n v. Nagle, 767 S.W.2d 691,

694 (Tex. 1989). Comment (e)

provides that in the case of a

judgment entered by confession,

consent, or default,

none of the issues is

actually litigated.

Therefore, the rule of

this § does not apply

with respect to any

issue in a subsequent

action. The judgment

See Restated (Second) of

Judgments, § 27, Comment (e)

(1982) (emphasis added).

Indeed, an agreed judgment

is more than a mere contract. It

has the same degree of finality

36

and binding force as one rendered

by a court at the conclusion of

adversary proceedings. Forbis v.

Trinity Universal Ins., 833 S.W.2d

316, 319 (Tex. App.--Ft. Worth

1992 error withdrawn) citing

Barrientes v. Harlandale Ind.

School Dist., 764 S.W.2d 28, 29

(Tex. App.--San Antonio 1989, writ

denied).

The Court finds: that the

recitations contained in the state

court consent judgment evidence

the agreement of the parties and

their attorneys. The consent

judgment was entered by agreement

in pursuance of a compromise and

settlement and became a judgment

on the merits. See Murray v.

Murray, 611 S.W.2d 172, 174 (Tex.

Civ. App.--El Paso, no writ); Bell

v. Moores, 832 S.W.2d 749, 755

(Tex. App.--Houston [14th Dist.]

1992, writ denied).

Under both federal law and state law,

the standards for collateral estoppel have

been met.

(3) ESSENTIAL TO STATE COURT JUDGMENT

It is clear that a determination of the

issue of whether the debt created by the

State Court Judgment was a property division

or for support was essential to the judgment.

In its opinion, the District Court on appeal

reviewed the record and ruled that the

Pe RR eee eT ee

37

pleadings in the State Court Action

demonstrate that the alimony and support

jssue was essential to State Court Judgment.

The District Court found that "the alimony

issue was pointedly raised by the state court

pleadings in order to clarify the nature of

the obligation." In the Plaintiffs Original

Petition in the State Court Action, Audrey

Dennis sought relief against the Debtor that

would require that the Debtor report the

gross pension income on the Debtor’s tax

return and that the Debtor pay the taxes

"without deduction for alimony or spousal

support payments." Audrey Dennis, therefore,

Clearly raised the issue of what the nature

of the Debtor’s obligation would be when the

Debtor paid the taxes. The final State Court

Judgment in fact required the Debtor to pay

the taxes "without deduction for alimony or

Spousal support payments."

Furthermore, in the Plaintiff’s

Original Petition in the State Court Action,

Audrey Dennis at page 2 represented the

38

following to the state court: "The Decree of

Divorce referred to above provided in part

that ‘this Judgment is part of the division

of community property between the parties and

shall not constitute or be interpreted to be

any form of spousal support, alimony, or

child support.’" This language was also

incorporated into the State Court Judgment.

(4) PARTIES ADVERSARIES

IN_THE FIRST ACTION

Finally, under any analysis, it is

clear that the_parties to the

dischargeability action were the same parties

who were cast as adversaries in the in the

State Court Action, because Audrey Dennis .

obtained a judgment against the Debtor in

that action. ;

Under both federal law and state law,

the Debtor has met the standards for the

applicability of collateral estoppel.

_(5) APPLICABILITY OF |

COLLATERAL BSTOPPEL TO § 523 (A) (5)

This Court and the Court of Appeals for

the Fifth Circuit have clearly determined

39

that collateral estoppel is a doctrine

applicable in dischargeability proceeding.

If the standards for collateral estoppel are

met, the doctrine cannot simply be ignored in

any dischargeability proceeding, whether the

proceeding is pursued under § 523(a)(5) or

any other provisions of § 523. The

bankruptcy court is bound under federal law

to give collateral estoppel effect to

findings made in state court action.

Furthermore, the Full Faith & Credit

Act, 28 U.S.C. § 1738, a state judicial

proceeding "shall have the same full faith

and credit in every court within the United

States...as they have by law or usage in the

courts of such State...from which they are

taken."

In United Pac. Ins. Co. v. McClelland

(Matter of Troy Dodson Constr. Co.), 993 F.2d

1211, 1214 (Sth Cir. 1993), the Fifth

Circuit, citing the Full Faith & Credit Act

with respect to an appeal from a decision of

the bankruptcy court, held that the Circuit

40

must “apply the same standard of collateral

estoppel that would be used in state court to

determine the preclusive effect of one of its

judgments."

C. CONCLUSION

The Petitioner requests that the Court

grant a Writ of Certiorari to the United

States Court of Appeals for the Fifth Circuit

because the decision of the Court of Appeals

is contrary to the law as developed by other

Circuit Courts of Appeal.

aga submitted,

‘ARTHUR J. ROSSI,

Law Offices of

Martin Seidler

One Elm Place, Suite E-504

11107 Wurzbach Road

San Antonio, Texas 78230

(210) 649-0300

(210) 690-9886 (telefax)

ATTORNEYS FOR LEBARRON

DENNIS, PETITIONER

PAUL ROSENBAUM

ROSENBAUM LEGAL SERVICES

6326 Sovereign Drive,

Suite 140

San Antonio, Texas 78230

(210) 344-7716

SO PPO LP ee Se Ee ae eee aT it ses

ee eo SS

la

LEBARON DENNIS,

PETITIONER

Vv.

AUDREY DENNIS,

RESPONDENT

APPENDIX TO

PETITION FOR WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

PETITION FOR WRIT OF CERTIORARI

AP Be

2a

APPENDIX A TO

PETITION FOR WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

ee a

3a

25 FEDERAL REPORTER, 3d SERIES

In the Matter of Lebaron

DENNIS, Debtor

Lebaron DENNIS, Appellee

Vv.

Audrey H. DENNIS, a/k/a Joyce

Dennis, Appellant

No. 93-8613

United States Court of Appeals,

Fifth Circuit

July 13, 1994

Chapter 7 debtor’s former spouse

brought adversary proceeding to except debt

from discharge as allegedly being in nature

of "alimony, maintenance or support." The

United States Bankruptcy Court for the

Western District of Texas entered judgment in

favor of wife, and debtor appealed. The

District Court,, H.F. Garcia J., reversed.

On further review, the Court of Appeals,

Johnson, Circuit Judge, held that: (1) former

wife was not collaterally estopped from

arguing that debtor’s obligation to pay taxes

On military retirement benefits awarded to

her was nondischargeable support obligation,

4a

and (2) obligation could not be discharged as

being in nature of alimony, maintenance or

support."

Reversed and rendered for wife.

i. Bankruptcy

Determination as to whether debtor’s

obligation to former spouse should be

excepted from discharge, as one for alimony,

maintenance or support, is matter of federal

bankruptcy and not state law. Bankr.Code, 11

U.S.C.A 9 523(a) (5).

3. Bankruptcy

In deciding whether debtor’s obligation

to former spouse should be excepted from

discharge, as one for alimony, maintenance or

support, bankruptcy courts must look beyond

labels which state courts, and even parties

themselves, have given to obligation.

Bankr.Code, 11 U.S.C.A § 523(a) (5).

3. Bankruptcy

Mere fact that creditor has previously

reduced claim to judgment does not preclude

bankruptcy court, in ruling on

5a

dischargeability of judgment debt, from

inquiring into true nature of debt and ruling

contrary to first court’s judgment, if

necessary. Bankr.Code, 11 U.S.C.A § 523(a).

4. Bankruptcy

Debtor’s former spouse is not barred

from arguing in bankruptcy that debtor’s

obligations to spouse are nondischargeable

support obligations, even though spouse has

argued to contrary in state court. Bankr.

Code, 11 U.S.C.A § 523(a) (5).

5. Bankruptcy

Ultimate finding as to whether debt is

nondischargeable as defined by bankruptcy law

is solely within province of bankruptcy

court. Bankr.Code, 11 U.S.C.A. § 523(a).

6. Bankruptcy

Only in limited circumstances may

bankruptcy courts ignore Congress’ mandate to

provide plenary review of dischargeability

issues and decide question of debt’s

dischargeability based on principles of

collateral estoppel.

6a

7. Judgment

Collateral estoppel applies in bankruptcy

dischargeability proceedings only if prior,

nonbankruptcy court has made specific,

subordinate, factual findings on identical

dischargeability issue in question, and only

if facts supporting prior, nonbankruptcy

court’s finding; are discernible from that

court’s record. Bankr.Code, 11 U.S.C.A §

523 (a).

8. Judgment

Chapter 7 debtors former wife was not

collaterally estopped from arguing that

debtor’s obligation to pay taxes on her one

half interest in debtor’s retirement benefits

was in nature of nondischargeable support

award, though wife had previously argued in

state court proceedings to enforce debtor’s

obligation that obligation was part of

property settlement; question of whether

obligation was in nature of "support" for

bankruptcy nondischargeability purposes was

different from questions raised in prior

7a

state court enforcement action. Bankr.Code,

11 U.S.C.A. § 523 (a) (5).

9. Judgment

Basic premise of collateral estoppel

doctrine is that issue raised in second

tribunal must be identical to issue raised

and resolved in prior tribunal.

10. Bankruptcy

Among factors that bankruptcy court

considers in deciding whether debtor’s

obligation to former spouse should be

excepted from discharge, as one for alimony,

maintenance or support, are: any disparity in

parties’ earning capacities; parties’

relative business opportunities; parties’

physical condition; their educational

background; their probable future financial

needs; and benefits that each party would

have received if marriage had continued.

Bankr.Code, 11 U.S.C.A § 523(a) (5).

11. Bankruptcy

Chapter 7 debtors’ obligation to his

former wife of 31 years to pay taxes on that

8a

portion of his military retirement benefits

awarded to former wife at time of their

divorce was in nature of "alimony,

maintenance or support" and could not be

discharged in bankruptcy, where wife was

54-year-old woman who had not worked outside

the home in more than 28 years, and who had

no work skills or job offers, while husband

was. extremely successful doctor who was

earning well over a quarter of a million

dollars a year when parties divorced.

Bankr.Code, 11 U.S.C.A. § 523(a) (5).

See publication Words and Phrases for

other judicial constructions and definitions.

Louis LeLaurin, Marita Emmett, San

Antonio, TX, for appellant.

Paul W. Rosenbaum, Rosenbaum Law

Services, Noe Reyna, Jack Minyard Partain,

Jr., Fulbright & Jaworski, San Antonio, TX,

for appellee.

Appeal from the United States District

Court for the Western District of Texas.

9a

Before JOHNSON, BARKSDALE, and

DeMOSS, Circuit Judges.

JOHNSON, Circuit Judge:

After more than thirty-one years of

marriage, LeBaron and Audrey ("Joyce") Dennis

divorced. The divorce court awarded Joyce

one-half of LeBaron’s military retirement

benefits, and LeBaron agreed to pay the taxes

thereon. Six years after the divorce,

LeBaron filed a petition for bankruptcy. He

sought a discharge of his obligation to pay

the taxes on Joyce’s share of the retirement

benefits. The bankruptcy court determined

that LeBaron’s sbidaenton to pay the taxes

constituted alimony, maintenance, or support

under section 523(a) (5) of the Bankruptcy

Code. The bankruptcy court therefore ruled

that LeBaron’s tax obligation was

nondischargeable. The district court,

reviewing the case on appeal, reversed.

Finding that the bankruptcy court properly

ruled that the debt in question was

nondischargeable, we reverse.

10a

I. Facts and Procedurai History

Joyce and LeBaron Dennis married on

December 18, 1954. At that time, LeBaron was

a medical student at Harvard Medical School

with three semesters remaining until

graduation. Joyce obtained a clerk-typist

Job to pay for their living expenses. She

financially supported the family throughout

LeBaron’s last three semesters of medical, as

well as throughout LeBaron’s internship after

medical school. Upon completion of his

internship, LeBaron entered the Air Force as

a physician. He made it clear to Joyce that

he did not want his wife - the wife of a

doctor - working outside the home. For the

next twenty-eight years, therefore, Joyce

worked as a full-time wife and mother.

In 1981, LeBaron retired from the Air ;

Force as a full colonel. He then entered :

into private practice as a plastic surgeon.

LeBaron experienced great financial success

in the private sector. In 1982, just one

year after retirement from the Air Force,

lla

LeBaron more than double his income. In

1985, LeBaron earned well over $284,000 from

his medical practice alone. While the Dennis

family was reaping significant monetary

benefits, they were, at the same time,

encountering grave family problems. On July

14, 1985, LeBaron and Joyce separated. They

divorced approximately one year later, after

more than thirty-one and half years of

marriage.

On the day before trial on the divorce

issues, LeBaron and Joyce entered into a

settlement agreement. Among other things,

they agreed that Joyce would obtain fifty

percent of LeBaron’s military pension.

During the settlement negotiations, LeBaron

verbally offered to pay all of the taxes due

on Joyce’s share of the benefits. Because

Joyce had no degree, no skills, no job, and

no prospects for a job, she accepted the

Pee aa)

mlb hsas

12a

offer.’ LeBaron agreed to - and did -

memorialize this agreement in a writing.’

During the trial before the bankruptcy

court, LeBaron testified that he wanted to

preserve an interest in Joyce’s share of the

benefits should she predecease him. LeBaron

believed that to preserve such an interest,

he was required to have the Air Force deposit

all of the funds into his bank account. He

therefore offered to pay all of the income

taxes- due on Joyce’s share of the pension if

she would give up her right to have the Air

Force send the money directly to her and all

. Joyce testified before the bankruptcy

court that she agreed to vacate the Dennis’ home in

one month and allow LeBaron to serve as trustee over

the retirement benefits in exchange for LeBaron’s

agreement to pay the taxes on her share of the

pension. Both parties testified that Joyce had no

other source of regular income and that the tax-free

retirement income was important for Joyce’s survival.

. LeBaron specifically explained that the

agreement to pay the taxes was a part of the divorce

settlement. The writing began as follows: "This. |

letter will serve to restate and clarify the q

agreement contained in our divorce agreement ..." .

Rec. at 50, 52 (emphasis added). He stated that the

Air Force would deposit the money into his account;

he would provide Joyce one-half of the gross amount

received and would pay the income taxes due for all

of the benefits.

l3a

the Air Force to deposit all of the funds

into LeBaron’s account instead. Joyce

agreed. However, soon after Signing the

agreement, LeBaron learned that he did not

have to have the money deposited into his

account in order to preserve his interest in

Joyce’s share of the benefits. He thus

decided not to pay any taxes on Joyce’s

amount. He instead declared that the

benefits given to Joyce constituted alimony

and deducted that amount from his gross

income on his income tax forms. LeBaron chose

not to inform Joyce of these decisions.

Hence, she assumed that LeBaron was paying

the taxes as required by their agreement.

Joyce learned otherwise in November

1988, when the Internal Revenue Service

informed her that she owed taxes, interest,

and penalties on all of the retirement

benefits she had received in the previous two

years. A tax court later found her liable

for taxes and interest in the amount of

l4a

$19,720.33.’ Joyce thereafter filed suit

against LeBaron in a Texas county court at

law for breaching his agreement to pay the

taxes on the retirement benefits. In her

petition to that court, she quoted her

divorce decree which "provided in part that

‘this Judgment is part of the division of

community property between the parties and

shall not constitute or be interpreted to be

any form of spousal support, alimony, or

child support’" Rec. at 41. Joyce asked the

Texas county court to find LeBaron liable for

the $19,720.33 and to require LeBaron to

specifically perform his duties outlined in

the agreement by reporting the gross amount

of the retirement benefits as income, by

paying the taxes on the gross amount, and by

not deducting the benefits from his gross

income as alimony or spousal support.

The Texas county court, referring to

language in the divorce decree, found that

Because she had acted in good faith,

Joyce did not have to pay the penalties.

15a

LeBaron’s agreement to pay the taxes "was

part of the division of community property

between the parties and did not constitute

nor should it be interpreted to be any form

of spousal support, alimony or child

support."* Rec. at 45. The Texas county

court held LeBaron liable for the taxes,

ruled that LeBaron was required to pay the

taxes in the future, and forbade LeBaron from

deducting the military benefits from his

gross income and Claiming that the benefits

constituted alimony or Support. The Texas

county court signed its judgment, which was

actually a consent decree, on Friday, January

3, 1992.

Four days-two working days-later, on

Tuesday, January 7, 1992, LeBaron filed a

petition for bankruptcy under Chapter 7 of

the Bankruptcy Code. He sought to have his

Past and future tax obligations to Joyce

discharged. LeBaron and his new wife filed a

. This language mirrors, almost verbatim,

the language in the divorce decree.

16a

Chapter 13 proceeding in July of 1992. They

listed Joyce as one of only two creditors and

proposed to make no payments whatever on the

taxes due on Joyce’s share of the retirement

benefits. LeBaron contended that because the

Texas county court had found that the

obligation did not constitute alimony or

spousal support, the doctrine of collateral

estoppel prevented the bankruptcy court from

finding to the contrary.

The bankruptcy court disagreed. The

ELAR NN BS LEE SSS y

bankruptcy court ruled that it was bound

neither by the characterization which the

parties had given the obligation nor by the

decision of the Texas county court at law.

Reviewing the facts of the case de novo, the

bankruptcy court found that although the

parties and the Texas county court had given

the obligation another name, "it still

smelled) like alimony or support." The court

therefore ruled that LeBaron’s duty to pay

Joyce’s taxes was nondischargeable. LeBaron

appealed to the federal district court, and

17a

that court reversed. It ruled that the

doctrine of collateral estoppel was

applicable in the facts of this case and

there fore prohibited the bankruptcy court

from finding that the tax payments

constituted alimony, maintenance, or support.

Joyce now appeals.

II. Discussion

A. The Law Stated

[1] Section 523 of Title 11 sets forth the

exceptions to the general rule that all debts

are dischargeable through bankruptcy.

Subsection (a) (5) (B) is the provision in

issue here. It reads:

A discharge ... of this title does

not discharge an individual debtor

from any debt to a spouse, former

spouse. or child of the debtor,

for alimony to, maintenance for,

or support of such spouse or

child, in connection with a

separation agreement, divorce

decree or other order of a court

of record, determination made in

accordance with State or

territorial law by a governmental

unit, or property settlement

agreement, but not to the extent

that such debt includes a

liabilities designated as alimony,

maintenance, or support, unless

18a

such liabilities is actually in

the nature of alimony,

maintenance, or support.

11 U.S.C. § 523(a) (5) (B). Since 1970, the

determination of whether a debt is

nondischargeable under this provision has

been a matter of federal bankruptcy law not

state law. Grogan v. Garner, 498 U.S. 279,

284, 111 S.Ct. 654, 658, 112 L.84.2d 755

(1991) ; In re Joseph, 16 F.3d 86, 87 (Sth

Cir.1994); In re Biggs, 907 F.2d 503, 504

(Sth Cir.1990); see also Brown v. Felsen, 442

U.S. 127, 136. 99 &.Ct 2208, 2244, 60 &.86.20

767 (1979) (stating that "[b]ly the express

terms of the Constitution, bankruptcy law is

federal law").

[2-5] Bankruptcy courts must therefore

look beyond the labels which state courts -

and even parties themselves - give

obligations which debtors seek to have

discharged.* In re Davidson, 947 F.2d 1294,

9 This is not only a clearly established

principle in this Circuit, but no other circuit to

review this issue has ever taken a contrary view.

See, e.g., In re Brody, 3 F.3d 35, 39 (2d Cir.1993)

19a

1296 (Sth Cir.1991); In re Benich, 811 F.2d

943, 945 (Sth C:r.1987); In re Nunnally, 506

F.2d 1024, 1027 (Sth Cir.1975). Indeed the

mere fact that a creditor previously reduced

her claim to a judgment does not preclude the

bankruptcy court from inquiring into the true

nature of the debt - and ruling contrary to

the first court’s judgment, if necessary.

Brown 442 U.S. at 138, 99 S.Ct. at 2212; In

re Brody, 3 F.3d at 39. In fact, a spouse is

not barred from arguing in bankruptcy court

that certain obligations constitute alimony

or support even if that spouse argued to the

(deciding that labels given an obligation by the

parties or the state court are not dispositive): In

re Sampson, 997 F.2d 717, 722 (10th

Cir.1993) (concluding that the label attached to an

obligation does not control); Adams v. Zentz, 963

F.2d 197, 199 (8th Cir.1992) (determining that state

law or the divorce decree characterization of the

debt is not binding on bankruptcy courts); In re

Gianakas, 917 F.2d 759,762 (3d Cir.1990) (ruling that

bankruptcy courts must look beyond the label attached

to settlement agreements to find the debt’s true

mature; In re Seibert, 914 F.2d 102, 106 (7th

Cir.1990) (ruling that state law does not control the

issue of whether an obligation constitutes alimony,

maintenance, or support); In re Long, 794 F.2d 928,

930 (4th Cir. 1986) (determining that labels are not

controlling); Stout v. Prussel, 691 F.2d 859, 861

(9th Cir.1982) (holding that the descriptions which

Parties give obligations in settlements or decrees

are not conclusive).

20a

contrary in state court. [In re Brody, 3 F.3d

at 39. To be sure, "(t]he ultimate finding

of whether [a debt is nondischargeable, as

‘defined’ by the bankruptcy law) is solely

(in) the province of the bankruptcy court."

Shuler, 722 F.2d 1253. 1256 (Sth Cir.). cert.

denied 469 U.S. 817, 105 S.Ct. 85, 83

L.Ed.2d 32 (1984) (quoting Franks v.

Thomason, 4 B.R. 814, 820-21

(Bankr.N.D.Ga.1980)).

The reason for these well-settled

principles is that parties and state courts,

as a general rule, do not label obligations

with federal bankruptcy standards in mind.

Even if a state court reviews an issue which

SIRES ATL IS LEAL ANT IRR TR

is similar to one created by the

nondischargeability provision in the

bankruptcy code, the state law concept will

likely differ from the specific federal

bankruptcy doctrine in question. Brown, 442

U.S. at 135, 99 S.Ct. at 2211. This is

especially true in cases which require courts

to determine the nature of divorce

21a

settlements - and even more so when that

question is raised in Teas, which has no such

animal as alimony. In re Joseph, 16 F.3d at

87; In re Nunnally, 506 F.2d at 1027; see

also In re Jones, 9 F.3d 878, 880 (10th

Cir.1993) (ruling that debt may be in the

nature of alimony, maintenance, or support

under federal bankruptcy law, even though it

is not legally qualified as alimony under

state law).

[6,7] Hence, in only limited

circumstances may bankruptcy courts defer to

the doctrine of collateral estoppel and

thereby ignore Congress’ mandate to provide

plenary review of dischargeability issues.

Collateral estoppel applies in bankruptcy

courts only if, inter alia, the first court

has made specific, subordinate, factual

findings on the identical dischargeability

issue in question - that is, an issue which

encompasses the same prima facie elements as

the bankruptcy issue -and the facts

Supporting the court’s findings are

22a

discernible from that court’s record. In re

Davis, 3 F.3d 113, 115 (5th Cir.1993); In re

Shuler, 722 F.2d at 1256. See In re Comer,

723 F.2d 737 (9th Cir. 1984) (ruling that

bankruptcy courts should not rely solely on

state court judgments when determining the

true nature of a debt for dischargeability

purposes if so doing would prevent the

bankruptcy courts from exercising their

exclusive jurisdiction to determine whether

the debt is dischargeable); see also Browning .

v. Navarro, 887 F.2d 553, 561 (Sth Cir.1989)

(providing that although the doctrine of res

judicata is generally applicable to

bankruptcy courts, the contours of the

doctrine are "different for bankruptcy courts

because tasks which have been delegated

to [bankruptcy courts] by Congress may not be

interfered with by the decisions of other

courts ... {B}bankruptcy courts have a job to

do and sometimes they must ignore res

judicata in order to carry out Congress’

mandate").

oa Ran Se eta ROUTER RS IN NP RI EMI ee RR Lo

23a

B. The Law Applied

[8,9] Contrary to the plethora of

cases which hold that bankruptcy courts must

review for themselves the true nature of an

obligation under section 523 (a) (5) (B),

. LeBaron asks this Court to rule that the

consent judgment signed by the Texas county

court at law collaterally estopped the

bankruptcy court here from finding that the

tax payments in' issue were, in truth ,

alimony, maintenance, Or support. This we

cannot do. As explained above, the first and

most basic premise in the second tribunal

must have been the identical issue raised and

resolved in the first tribunal.

Such is not the case here. LeBaron can

point to no state court finding or evidence

which proves or even intimates that the

parties or the Texas county court designed

the settlement agreement and consent decree

with federal bankruptcy standards in mind.

To the contrary, Joyce’s complaint and the

agreed judgment merely referred to language

24a

in the divorce decree which characterized the

property exchange as a property settlement, %

as opposed to alimony or support. The

divorce decree, to be consistent with Texas

law, could characterize the property

distribution as nothing other than a property

settlement. Joyce, to be consistent with

Texas law, could find nothing contrary to

Joyce’s reference to the divorce decree’s

provision that the property transfer

constituted a property settlement.

However, federal bankruptcy law, not

Texas law, governs here. The bankruptcy

court had neither the option nor the

authority to apply state law in the case sub

judice. That court was instead required to

make findings of fact and conclusions of law

in accord with federal bankruptcy law - and

that is exactly what it did.

(10,11) In In re Joseph, this Court

set forth a nonexclusive list of factors

which bankruptcy courts should review in

deciding whether a divorce obligation

25a

constitutes alimony, maintenance, or support.

The considerations include the parties’

disparity in earning capacity, their relative

business opportunities, their physical

condition, their educational background,

their probable future financial needs, and

the benefits each party would have received

had the marriage continued. In re Joseph, 16

F.3d at 88. The bankruptcy court in this

case. reviewing these and other similar

factors, recognized-that at the time of the

divorce, Joyce was a fifty-four year old

woman who had not worked outside the home in

more than twenty-eight years. She had no

job, no job offers, no work skills, and no

college education. LeBaron, on the other

hand, had an extremely successful medical

practice and was earning well over a quarter

of a million dollars a year at the time of

the divorce. In light of these financial

disparities, the bankruptcy. court found that

LeBaron’s obligation to pay the taxes on

Joyce’s share of the military pension was, in

26a

true nature, alimony, maintenance, or support

under section 523(a)(5)(B) of Title 11. The

court therefore ruled that LeBaron’s debt on

the taxes was nondischargeable. Unlike the

district court, which did not review the

facts of this case in light of bankruptcy

Dep

law, but instead held that the collateral

estoppel doctrine controlled, we find no

error in the bankruptcy court’s decision.

III. Conclusion

<he 2h oe FS oe

Because the issue decided in the Texas

state court was not identical to the issue in

question before the bankruptcy court, the

doctrine of collateral estoppel is

inapplicable in this case. The district 1

courts erred in ruling otherwise. We

REVERSE AND RENDER for Joyce Dennis.

27a

APPENDIX B TO

PETITION FOR WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

' 28a

IN THE UNITED STATES BANKRUPTCY COURT

FOR THE WESTERN DISTRICT OF TEXAS

SAN ANTONIO DIVISION

IN RE: 3

LEBARON DENNIS, 4

3 Bankruptcy No.

§ 92-50122

Debtor § Adversary No.

€ 92-05033

bl

LEBARON DENNIS, $

&

Appellant, 8

3 CIVIL NO.

% SA-93-CA-178

Vv. §

4

AUDREY H. DENNIS, q

§

Appellee, §

ORDER

On this date came on to be considered

by the Court an appeal from the bankruptcy

court’s judgement determining that

appeilant’s obligation to pay all income

taxes on military retirement benefits awarded

to his ex-spouse by or i connection with a

divorce decree was not dischargeable under

Title 11 U.s.c. § 523 (a) (5).

Debtor/appellant, Dr. Lebaron Dennis,

and his wife, Audrey Dennis, obtained a

divorce by final decree in the 225th Judicial

29a

District Court of Bexar County, Texas on July

23, 1986. See Divorce Decree, Appellant’s

Brief, Exh. A. The divorce decree provided

that Audrey Dennis would receive 50 percent

of the gross present and future military

retirement benefits received each month by

Dr. Dennis. Id. at p. 4.

After the divorce, Dr. Dennis agreed to

pay income taxes on all military retirement

benefits received by his ex-spouse. This

agreement was memorialized in writing by

three letters written after the Final Divorce

Decree. See Agreement Letters, Appellant’s

Brief, Exhs. D, E, and F. The September 8,

1986 and December 22,1986 explanatory letters

specifically categorize the income tax accord

as an "agreement contained in our divorce

agreement" regarding the awarded military

pension in the divorce decree. Id. Exhs. E

and F.

Despite the agreement, Dr. Dennis did

not pay the income taxes on military

retirement benefits. In 1991, Audrey Dennis

30a

filed suit in County Court at Law No. 8 of

Bexar County, Texas based on her ex-husband’s

failure to pay the income taxes as part of

their divorce settlement. Audrey’s state

court complaint noted that the Divorce Decree

provided that the judgment "is part of the

division of community property between the

parties and shall not constitute or be

interpreted to be any form of spousal

Support, alimony, or child Support." See

Plaintiff’s Original Petition, Appellant’s

Brief, Exh. B, p. 2.

The state court complaint also

indicated that Audrey Dennis first learned

that her ex-husband had breached his

agreement to pay the taxes in November, 1988.

At that time, she also learned that Dr.

Dennis had reported the payments to her as an

alimony or spousal support deduction on his

tax return. The amount was then treated as

income to Audrey Dennis. Id. Exh. B, P. 2-3.

Audrey sought $19,720.33 in damages,

representing the additional amoun:s she had

3la

to pay the Internal Revenue Service on her

taxes, professional fees connected thereto,

the additional tax she was required to pay by

being placed in a higher tax bracket, and

interest. Id. Exh. B., p. 3. Her complaint

also specifically sought a decree requiring

LeBaron Dennis to perform his contract,

to report the gross pension Income on his tax

return, and to pay the tax due thereon

"without deduction for alimony or spousal

support payments." Id. Exh. B., p. 4.

The state court entered a consent

judgment on January 3, 1992. See State Court

Judgment, Appellant’s Brief, Exh. C. The

Court found that Dr. Lebaron Dennis had

breached his agreement to assume

responsibility for paying the tax on the

gross pension benefit of his income and to

report it as his income and pay all taxes due

thereon. The Court further found that the

agreement was part of the division of

community property between the parties and

did not constitute nor should it be

32a

interpreted to be any form or spousal

Support, alimony, or child support. Id.

Accordingly, the Court ordered Dr.

Dennis to pay damages in the amount or

$19,720.33, reasonable attorneys fees in the

‘amount of $8,500.00, pre-judgment and

post-judgment interest, and costs of suit.

Dr. Dennis was further ordered to report the

gross pension income on his tax return and to

Pay the tax due thereon "without deduction

for alimony or Spousal support payments."

Id.

Four days later, Dr. Lebaron Dennis

filed for protection under Chapter 7 of the

Bankruptcy Code. on February 19, 1992,

debtor Dennis filed a complaint to determine

the dischargeability of his prior, current

and future obligation to Pay all income taxes

On the military retirement benefits awarded

to his ex-spouse in connection with the

divorce. See Bankruptcy Complaint,

Bankruptcy Record. He claimed that the

obligation was dischargeable because the

a a ee 4

33a

obligation was a property division rather

than alimony, maintenance

or support’. Id.

Audrey Dennis filed counterclaims in

the adversary proceeding alleging that the

obligation to pay income taxes was

nondischargeable as alimony, maintenance or

support. She also alleged that the debt was

nondischargeable under Section 523(a)(4) for

fraud or defalcation while acting in a

fiduciary capacity. See First Amended

Counterclaim, Bankruptcy Record.

On October 19, 1992, the bankruptcy

court conducted a hearing in the adversary

proceeding. After hearing the testimony of

Dr. Dennis and Audrey Dennis as well the

argument of counsel, Bankruptcy Judge King

concluded that the obligations were

nondischargeable. See Transcript, p. 113.

‘ Debtor also argued notes site banberaptey

court that the = agreement was pS lack of

consideration llegal under Revenue

Service eM, This Court — the

bankruptcy court properly overruled these

34a

He found that the tax obligation was

negotiated by the parties; that the state

court judgment provided that the tax

agreement was in effect a part of the Divorce

Decree; and that she relied on the agreement.

Id.

The bankruptcy court specifically found

that he was not bound by the type of property

division characterization given the tax

agreement by the consent state court

judgment. Judge King indicated that the

issue of whether the agreement constituted

alimony or spousal support was not actually

litigated; that the issue was merely part of

an agreed judgment; and that the

characterization was placed into the judgment

by "some clever lawyers" trying to gain an

advantage for their client. See Transcript,

p-. 114.

The bankruptcy court next explained

that Audrey Dennis needed the Tax agreement

income as maintenance and support; that Mrs.

Dennis did not do as well as she should have

35a

under the division of property; and that the

Tax agreement income was taken into account

in the division of property. See Transcript,

p. 115-16. He also indicated that no

fiduciary duty existed under the Tax

agreement so as to render the debt

nondischargeable under Title 11 U.S.C. §

523 (a) (4)?.

On October 26, 1992, Bankruptcy Judge

King signed a judgment awarding Audrey Dennis

the sum of $19,723.33 as previously ordered

by the state court judgment with interest

thereon from June 15, 1991 until paid. Judge

King also awarded Audrey Dennis attorneys’

fees in the amount of $8,500.00 as previously

ordered by the state court judgment with

interest thereon from January 3, 1992 until

paid. See Adversary Proceeding Judgment,

Appellant’s Brief, Exhibit G.

The judgment also provided for the

assessment of the pertinent military pension

. Bankruptcy Judge King’s decision

regarding §523(a) (4) was not appealed.

36a

income taxes in the future. The bankruptcy

court found that each of said obligations

were nondischargeable under Title 11 U.S.c. §

523 (a) (5S). Id. The Court subsequently

denied Dr. Dennis’ motion for reconsideration

on December 18, 1992. This appeal followed.

Appellant asserts that the bankruptcy

court committed reversible error by granting

judgment in favor of appellee and by denying

appellant’s motion for reconsideration.

Appellant contends that the bankruptcy court

erred: 1) by eurensously refusing to give

collateral estoppel effect to the Texas state

court judgment finding that appellant’s

agreement to pay taxes on the military

retirement benefits did not constitute any

form of spousal support or alimony; 2) by

improperly concluding that appellant’s

obligation to pay income taxes on those

military retirement benefits was

nondischargeable under Title 11 U.S.C. §

S523(a)(S); and (3) by inappropriately

assessing interest and state court attorneys’

37a

fees.

Appellee Audrey H. Dennis argues that

the bankruptcy court properly declined to

apply the doctrine of collateral estoppel;

that the bankruptcy court correctly found

that the nature or the tax obligation was

support or maintenance under § 523(a) (5); and

that the bankruptcy court properly ruled on

the secondary issues of interest and

attorney's fees.

Of course, the district court in its

appellate role must give due regard to the

opportunity of the bankruptcy court to judge

the credibility of the witnesses. See In re

Perez, 954 F.2d 1026, 1027 (Sth Cir. 1992).

Thus, a kankruptcy court’s findings will be

affirmed unless, on the entire evidence, the

court is left with the "definite and firm

convictim that a mistake has been

committed." Id. citing Matter of Sutton, 904

F.2d 327, 329 (Sth Cir. 1990). This court

will apply the clearly erroneous standard to

the bankriptcy court’ s factual findings;

38a

conclusions of law are reviewed de novo. See

Bankruptcy Rule 8013; In re Anderson, 936

F.2d 199, 202 (Sth Cir. 1991).

THE ALIMONY DISCHARGE EXCEPTION

The Bankruptcy Code excepts from

discharge a debt owed to a former spouse for

alimony to, maintenance for, or support of

such spouse in connection with a separation

agreement, divorce decree, or property

settlement agreement if the debt is "actually

in the nature of alimony, maintenance or

Support." See Title 11 U.S.C. § 523(a) (5).

The Bankruptcy Code requires the

bankruptcy court to determine the true nature

of the debt, regardless of the

characterization placed on it by the parties’

agreement or the state court proceeding. See

Matter of Benich, 811 F.2d 943, 945 (Sth Cir.

1987) (citations omitted). Whether a

particular obligation constitutes alimony,

maintenance, or support within the meaning of

§ 523(a)(S) is a matter of federal bankruptcy

law, not state law. See Matter of Biggs, 907

39a

F.2d 503, 504 (5th Cir. 1990) citing H.R.

Rep. No. 595, 95th Cong., 2d Sess. 364,

reprinted in 1978 U.S. Code Cong. & Admin.

News 5787, 5963, 6320.

The bankruptcy court may, therefore,

consider extrinsic evidence to determine the

real nature of the underlying obligation in

order to determine its dischargeability.

Relevant evidentiary factors include earning

power disparity, educational background, and

future need for support. Matter of Benich,

811 F.2d at 945 citing In re Nunnally, 506

F.2d 1024, 1026 (Sth Cir. 1975). The Fifth

Circuit has indicated, however, that its

Benich holding does not negate the doctrine

of estoppel. See Matter of Davidson, 947

F.2d 1294, 1297 (Sth Cir. 1991) (applying

quasi-estoppel).

COLLATERAL ESTOPPEL

The United States Supreme Court has

held that collateral estoppel principles do

indeed apply in discharge exception

proceedings pursuant to Title 11 U.S.C. §

40a

523 (a)?*. Grogan v. Garner, 498 U.S. 279,

111 S.Ct. 654, 658 and fn. 11 (1991) citing

Restatement (Second) of Judgments § 27 (1982)

and In re Shuler, 722 F.2d 1253, 1256 (Sth

Cir.) cert. denied sub nom Harold V. Simpson

& Co. v. Shuler, 469 U.S. 817, 105 S.Ct. 85,

83 L.Ed.2d 32 (1984).

The consent state court judgment

recited that the Tax Agreement was part of

the division of community property settlement

between the parties and did not constitute

nor should it be interpreted to be any form

of spousal support, alimony, or child

support. Under Title 11 U.S.C. § 523(a) (5),

the bankruptcy court was required to decide

that identical issue.

It is well settled that the Full Faith

and Credit Act, Title 28 U.S.C. § 1738,

requires federal courts to accord a state

court judgment the preclusive effect which it

: Appellee’s argument that collateral

estoppel does not apply to subsection Z 523(a) (5) is

unpersuasive.

4la

would have under state law. Migra v. Warren

City School Dist. Bd. of Educ., 465 U.S. 75,

104 S.Ct. 892, 79 L.Ed2d 56 (1984) as cited

in Schuster v. Martin, 861 F.2d 1369, 1371

(Sth Cir. 1988) (applying Mississippi law of

collateral estoppel).

Under Texas Law, a party seeking to

invoke. the doctrine of collateral estoppel

must establish: (1) that the facts sought to

be litigated in the second action were fully

and fairly litigated in the prior action; (2)

that those facts were essential to the

judgement in the first case, and (3) the

parties were cast as adversaries in the first

action. Bonniwell v. Beech Aircraft Corp.,

663 S.W.2d 816, 818 (Tex. 1984) cited in J.M.

Muniz, Inc. v. Mercantile Texas Credit Corp.,

833 F.2d 541, 544 (Sth Cir. 1987).

The Court finds that the instant

parties were the opposing litigants in the

pertinent state court action. Audrey

Dennis’s state court complaint specifically

sought a decree requiring LeBaron Dennis to

42a

perform his contract, to report the gross

pension income on his tax return, and to pay

the tax due thereon "without deduction for

alimony or spousal support payments." See

Plaintiff’s Original Petition, Appellant’s

-Brief, Exh. B, P. 4. Since the alimony issue

was pointedly raised by the state court

pleadings in order to Clarify the nature of

the obligation, this Court finds that

resolution of that issue was certainly

essential to the state court judgment.

Texas courts apply Section 27 of the

Restatement (Second) of Judgments. See Texas

Real Estate Com’n v. Nagle, 767 S.W.2d 691,

694 (Tex. 1989). Comment (e) provides that

in the case of a judgment entered by

confession, consent, or default,

None of the issues is actually

litigated. Therefore, the rule of

this Section does not apply with

respect to any issue ina

subsequent action. The judgment

may be conclusive, however, with

respect to one or more issues, if

the parties have entered an

agreement manifesting such an

intention.

43a

See Restatement (Second) of Judgments,

§ 27, Comment (e) (1982) (emphasis added).

Indeed, an agreed judgment is more than

a mere contract. It has the same degree of

finality and binding force as one rendered by

a court at the conclusion of adversary

proceedings. Forbis v. Trinity Universal

Ins., 833 S.W.2d 315, 319 (Tex. App.- Ft.

Worth 1992 error withdrawn*) citing

Barrientes v. Harlandale Ind. School Dist.,

754 S.W.2d 28, 29 (Tex. App.- San Antonio

1989, writ denied).

Nearly five yeare after her divorce,

Audrey Dennis specifically sought a decree in

County Court at Law requiring her ex-husband

to perform his contract, to report the gross

pension income on his tax return, and to pay

the tax due "without deduction for alimony or

spousal support payments." See Plaintiff’s

Original Petition, Appellant’s Brief, Exh. B.

The resultant state court consent judgment

indicated that the tax agreement was part of

the division of community property between

SEY! Re ee OO HEE SF ay

44a

the parties and did not constitute nor should

it be interpreted to be any form of spousal

support, alimony, or child support. See

State Court Judgment, Appellant’s Brief, Exh.

Cc.

The Court finds that the recitations

contained in the state court consent judgment

evidence the agreement of the parties and

their attorneys. The consent judgment was

entered by agreement in pursuance of a

compromise and settlement and became a

judgment on the merits. See Murray v.

Murray, 611 S.W.2d 172, 174 (Tex. Civ. App.-

El Paso, no writ); Bell v. Moores, 832 S.W.2d

749, 755 (Tex. App.- Houston [14th Dist.)

1992 writ denied).

The Fifth Circuit has held that when

determining the effect to

be given a decree entered by consent of the

parties, consideration is to be given to

their intention with respect to the finality

to be accorded the decree as reflected by the

record and the words of their agreement.

45a

Kaspar Wire Works, Inc. v. Leco Engineering &

Mach., Inc., 575 F.2d 530, 540 (Sth Cir.

1978). This Court finds that the intention

manifested by the words of the consent

judgment is clear. See In re Lacy, 947 F.2d

1276, 1278 (Sth Cir. 1991) (Under certain

conditions, an agreed judgment is entitled to

collateral estoppel effect in discharge

proceedings).

The Dennis’ Divorce Decree provided

that the division or property did not

constitute alimony. Five years later, Audrey

Dennis specifically sought a declaration in

state court that her tax agreement with her

ex-husband did not constitute alimony. She

obtained a consent judgment to that effect.

After her ex-husband declared bankruptcy,

Audrey Dennis sought yet another bite at the

apple.

The pertinent legal authorities

indicate that courts should accord some

degree of finality to consent judgments when

they contain specific findings. After

46a

thorough consideration, this Court concludes

that the bankruptcy court should have given

collateral estoppel effect to the state court

consent judgment finding that appellant’s

agreement to pay taxes on the military

retirement benefits did not constitute any

form of spousal support or alimony.

Accordingly, for the reasons set forth

herein as well as those arguments presented

by the appellant, this Court hereby REVERSES

AND RENDERS the bankruptcy court’s October

26, 1992 order.

The obligation of LeBaron Dennis to pay

taxes on pension benefits received by Audrey

Dennis under the Judgment entered in Cause

No. 198503 in County Court at Law Number 8 of

Bexar County, Texas is hereby DISCHARGED.

SIGNED this 12th day of August, 1993.

H. F. GARCIA

UNITED STATES DISTRICT JUDGE

47a

APPENDIX C TO

PETITION FOR WRIT OF CERTIORARI

TO THE UNITED STATES COURT oP APPEALS

FOR THE FIFTH CIRCUIT

48a

AO 450 (Rev. 5/85) Judgment in a Civil Case

UNITED STATES DISTRICT COURT

DISTRICT OF

\

LEBARON DENNIS

Vv. JUDGMENT IN A CIVIL CASE

AUDREY H. DENNIS

CASE NUMBER SA-93-CA-178

Jury Verdict. This action came before the

Court for a trial by jury. The issues have

been tried and the jury has rendered its

verdict.

Decision by Court. This action came to trial

or hearing before the Court. The issues have

been tried or heard and a decision has been

rendered.

IT IS ORDERED AND ADJUDGED that the

Court REVERSES and RENDERS the Bankruptcy

49a

Court’s order of 10/26/92. The obligation of

LeBaron Dennis to pay taxes on pension

benefits received by Audrey Dennis under the

Judgment entered in Cause No. 198503 in

County Court at Law Number 8 of Bexar Cour.cy,

Texas, is hereby DISCHARGED.

Date Clerk

(By) Deputy Clerk

50a

APPENDIX D TO

PETITION FOR WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

5la

UNITED STATES BANKRUPTCY COURT

WESTERN DISTRICT OF TEXAS

SAN ANTONIO DIVISION

IN RE:

LEBARON DENNIS, CASE NO. 92-50122-K

DEBTOR CHAPTER 7 CASE

LEBARON DENNIS,

PLAINTIFF

vs. ; ADVERSARY PROCEEDING

NO. 92-5033

AUDREY H. DENNIS, a/k/a

JOYCE DENNIS,

DEFENDANT

JUDGMENT

On the 19th day of October, 1992, came

on for consideration PLAINTIFF’S FIRST

AMENDED COMPLAINT TO DETERMINE

DISCHARGEABILITY and DEFENDANT’S FIRST

AMENDED COUNTERCLAIM OF AUDREY H. DENNIS,

a/k/a JOYCE DENNIS. Plaintiff appeared in

person and through his attorney, Paul W.

Rosenbaum. Defendant appeared in person and

52a

through her attorneys, Robert L. Barrows and

Marita Emmett. The Court proceeded to call

the case for trial and both parties announced

ready. The Court proceeded to hear and

determine Plaintiff’s Complaint and

Defendant’s Counterclaim on the

dischargeability of Plaintiff’s obligation to

any all income taxes on the military

retirement payments awarded to Defendant by

or in connection with their divorce decree.

After consideration of the pleadings,

evidence and arguments of counsel, it is,

accordingly

ORDERED, ADJUDGED and. DECREED that

Defendant, Audrey H. Dennis, have and recover

of and from Plaintiff, LeBaron Dennis, the

sum of $19,723.33, as previously ordered by

the state court judgment, together with

interest thereon at the rate of eighteen

percent (18%) per annum from June 15, 1991

until paid. It is further

ORDERED, ADJUDGED and DECREED that

Defendant, Audrey H. Dennis, have and recover

aR Ty Tena

ee . =m

53a

of and from Plaintiff, LeBaron Dennis, an

additional sum of $8,500.00, as previously

ordered by the state court judgment, together

with interest thereon at the rate of ten

percent (10%) per annum from January 3, 1992

until paid. It is further

ORDERED, ADJUDGED and DECREED that

defendant, Audrey H. Dennis, have and recover

of and from Plaintiff, LeBaron Dennis, all

income taxes accruing against Defendant

Audrey H. Dennis’s military retirement

payments as of June 16, 1991 through the

current date, to be assessed at the highest

rate applicable to the total income of Audrey

H. Dennis, together with interest thereon at

the rate of ten percent (10%) per annum from

the date of this Judgment until paid. It is

further.

ORDERED, ADJUDGED and DECREED that

Audrey H. Dennis shall have and recover of

and from Plaintiff, LeBaron Dennis, all

income taxes, federal and state, on

Defendant’s military retirement benefits

54a

received by her after October 19, 1992,

calculated at the highest tax rate applicable

to the total income of Audrey H. Dennis to be

paid on at least a quarterly basis by

Plaintiff, LeBaron Dennis, on or before the

15th day of the month following the end

of each quarter of the fiscal year, and, if

not paid by that time, that the obligations

of Plaintiff to Defendant shall bear interest

at the rate of ten percent (10%) per annum.

It is further

ORDERED, ADJUDGED and DECREED that, if

the Internal Revenue Service or any other

taxing authority assesses at any time any

additional taxes, interest or penalties

against Audrey H. Dennis attributable to her

military retirement payments, that she have

and recover of and from Plaintiff, LeBaron

Dennis, all such sums, plus interest at the

rate of ten percent (10%) per annum until

paid. It is further

ORDERED ADJUDGED and DECREED that all

sums awarded to Defendant, Audrey H. Dennis,

55a

by the terms of this Judgment shall be and

remain excepted from any discharge in

bankruptcy of Plaintiff, LeBaron Dennis, in

that the amounts evidenced by this

Judgment represent nor-dischargeable

obligations under the provisions of 11 U.S.C.

§ 523(a) (5S), in accordance with the Court’s

findings made at the trial of this Adversary

Proceeding. It is further

ORDERED, ADJUDGED and DECREED that

Defendant, Audrey H. Dennis, shall have all

writs and processes necessary to enforce

this Judgment against Plaintiff, LeBaron

Dennis.

SIGNED this 26th day of October, 1992.

Ronald B. King, United States

Bankruptcy Judge

ee

Ce Se Hh el re ayes

PENNE, Pulte

56a i]

APPENDIX E TO

PETITION FOR WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

Nernst lage a

57a

I have nothing further, your Honor.

THE COURT: Okay. For the record,

these are my findings of fact and conclusions

of law.

I think the obligations are non-

dischargeable, first of all. I think the

taxes were originally part of the deal, taxes

on the pension of--the military pension. I

think it was a trade-off, a negotiated tern

during the divorce negotiations on the day of

and day prior to the Divorce Decree, that a

judgment form the County Court at Law

provides that the letter is in effect a part .

of the Divorce Decree and amends it by the

consent of the parties. Dr. Dennis wrote the

letter himself and it purports to expand the

obligations under the Divorce Decree. Mrs.

Dennis testified that it’s part of the

negotiating process, that she probably would

have agreed to the Divorce Decree without,

but that it was in effect a chip that was

given up in the negotiating give and take.

For Dr. Dennis’ own reasons, he elected

58a

to pay the income tax on her portion, whether

it was for her benefit or whether it was for

his benefit. But in either event, he agreed

to it; she relied on that and she didn’t pay

the taxes. Obviously after that, he didn’t

pay the taxes either and the I.R.S. came in

and discovered the situation and required her

to pay the taxes.

As far as the characterization of

whether or not it’s division of property or

alimony, maintenance and support, those two

are mutually exclusive and, obviously, the

documents are well drafted by able attorneys

stating that they’re division of property.

But we’re not bound by that. If they tried,

actually tried the issue of is this alimony,

maintenance and support or division of

property, it wasn’t actually litigated; this

was an agreed judgment that this was not an

issue that was litigated; it’s just something

that some clever lawyers put in there to try

to give an advantage to their client,

obviously.

59a

These types of recitations are not

binding on us. The old expression, if it

walks like a duck and quacks like a duck and

looks like a duck, then it probably is a

duck. I mean, if it says it’s a chicken but

it’s a duck, then it’s a duck. I think

Shakespeare said, a rose by any other name

would smell as sweet, or someone changed that

and said, you can change the name but you

can’t change the smell. Well, here you can

change the name of this, but it smells like

alimony or support.

Mrs. Dennis needed this, in my opinion.

Dr. Dennis had a very high earning capacity.

She paid his way in part through medical

school; he also had assistance from his

parents, but she paid their living expenses,

according to the testimony. She was a

homemaker, a mother and a wife for

approximately 30 years. She had no

marketable job skills except as a clerk. She

helped him to obtain a high paying position

as a surgeon, and in--by forgoing her own

60a

career. She obviously had the opportunity

thereafter to go back to school, for whatever

reason she chose not to, probably because of

the family. But in any event, the dye was

cast at that point.

The agreement was made by the parties.

Unfortunately, it’s up to me-- I didn’t make

the agreement, I wasn’t a party to it, I

wasn’t there--but it’s up to me to determine

the effect of it and the characterization of

it. There’s a case from the Fifth Circuit in

1975 called In Re: Nunnelly that I think is

the most instructive case in this area. It’s

all--it’s actually under the Bankruptcy Act

but it still applies, the reasoning of it

still applies. And Nunnelly said that, in

Texas, we obviously don’t have involuntary

alimony, under the case of Francis vs.

Francis; but even in a case where the parties

don’t agree on the property settlement and

the court imposes the property settlement,

there can be an element of maintenance and

support merely in the division of the

6la

property. And the fact that the parties

agreed to it, I don’t think changes that. I

think that the maintenance and support

obligation was there. I think that it was

taken into account in the division of

property.

She didn’t really do as well as she

should have under the division of property,

to be perfectly blunt. I don’t think that

she cut a very good deal. And so, I’m very

hesitant to find that this a part of a bad

deal that’s dischargeable and that, despite

the fact that he made the agreement for his

own benefit as well as her agree--as well as

her benefit, that now it’s dischargeable as

division of property.

As far as 523 (A) (4), I would find

there is not a fiduciary duty under the

agreement. It establishes a constructive

trust, that says what it says; but there are

cases that say there has to be an express

trust and I don’t think that there is an

express trust here, and a breach of contract

62a

by him failing to pay the taxes is not a

breach of fiduciary duty in the sense of 523

(A) (4).

If the I.R.S. prohibits him from

including in his income her half of the

military pension, then she can include it in

her income. But he has to pay her income tax

on that income to her, and that would also be

at her highest marginal rate. In other

words, if she makes $20,000 form her job and

she’s paid 20,000 in the military pension,

she’s responsible for the taxes on the first

20,000, which would be at the lowest rate

obviously, he would be responsible for the

taxes on the top 20,000, which would be at a

Slightly higher rate.

I don’t think that Davidson is exactly

on point. In Davidson, the husband claimed

that it was division of property but he

deducted the payments as alimony, maintenance

and support, and so Judge--the Fifth Circuit,

relying on Judge Clark’s opinion in Robinson

in part, said that it’s non-dischargeable

63a

because he’s estopped to claim otherwise. He

treated it as non-dischargeable by deducting

his alimony. Here he deducted it as alimony

but it was not--it was never intended for him

to get the benefit of it and then deduct it.

He was just supposed to pay taxes on all of

it and she was to get half, sol don’t think

that that’s exactly on point.

But for the record, I would find that

it’s non-dischargeable under 523 (A) (5), the

judgment that is in State Court is non-

dischargeable. The future obligations are

non-dischargeable and , in effect, since this

is a declaratory judgment and I think that

it’s a live dispute which is--it’s a good

faith dispute, I’11 put it that way, I’m

going to award any attorney’s fees in

addition to those previously awarded.

So I’ll ask Mr. Barrows to prepare the

judgment in favor of the Defendant, Mrs.

Dennis; that are non-dischargeable under 523

(A) (5). And those are my findings and

conclusions for the record, and they need not

64a

be restated in the judgment itself.

| MR. BARROWS: Thank you, your Honor.

(Indiscernible) provide an order.

THE COURT: All right. Thank you, you

tried a good case.

We’re be in recess.

THE ERO: All rise.

(Court in recess at 4:25 p.m.)

a a a ee i 2 2

APPENDIX F TO

PETITION FOR WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

NO. 198503

AUDREY H. DENNIS 4 IN THE COUNTY COURT

4

vs. b | AT LAW NUMBER 8

|

.

LeBARON W. DENNIS BEXAR COUNTY, TEXAS

JUDGMENT

On the day of , 199

—!

came on to be heard the above-entitled and

numbered cause, wherein Audrey H. Dennis is

Plaintiff and Dr. LeBaron W. Dennis is

Defendant. Plaintiff and Defendant appeared

by and through their respective attorneys of

record and announced to the Court that all

matters of fact and things in controversy

between them are being fully and finally

compromised and settled through the entry of

this judgment. The Court makes the following

findings and orders:

The Court finds that the Dr. LeBaron

Dennis breached his agreement to assume

responsibility for paying the tax on the

gross pension benefit of his income and to

report it as his income and pay all taxes due

thereon.

67a

The Court finds that the agreement was

part of the division of community property

between the parties and did not constitute

nor should it be interpreted to be any form

of spousal support, alimony or child support.

IT IS THEREFORE, ORDERED, ADJUDGED, AND

DECREED by the Court that DR. LEBARON DENNIS

report the gross pension income on the tax

return and pay the tax due thereon for the

gross pension income without deduction for

alimony or spousal support payments.

IT IS FURTHER ORDERED, ADJUDGED, AND

DECREED by the Court that Audrey H. Dennis,

Plaintiff, have and recover of and from Dr.

LeBaron Dennis, Defendant, the sum of

NINETEEN THOUSAND SEVEN HUNDRED TWENTY AND

33/100 ($19,723.33).

IT IS FURTHER ORDERED, ADJUDGED, AND

DECREED by the Court that Audrey H. Dennis,

Plaintiff, have and recover of and from Dr.

LeBaron Dennis, Defendant, as reasonable

attorney’s fees the sum of EIGHT THOUSAND

FIVE HUNDRED AND 00/100 ($8,500:;00).

”

68a

IT IS FURTHER ORDERED, ADJUDGED AND

DECREED, by the Court that Audrey H. Dennis,

Plaintiff, shall have and recover pre-

judgment and post-judgment interest on her

damages at the legal rate and that Plaintiff

shall recover costs of suit.

The parties are allowed such writs and

processes as may be necessary in the

collection or enforcement of this judgment.

All relief not expressly given is denied.

SIGNED this day of

, 199

JUDGE PRESIDING

APPROVED:

Bobby D. Myers

Robert D. Ulman

69a

APPENDIX G TO

PETITION FOR WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

ene

70a

UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

NO. 93-8613

D.C. Docket No. SA-93-CV-178

IN THE MATTER OF: LEBARON DENNIS,

Debtor,

LEBARON DENNIS,

versus

AUDREY H. DENNIS,

a/k/a Joyce Dennis,

Appellant.

Appeal from the United States District

Court for the Western District of Texas

Before JOHNSON, BARKSDALE, and DeMOSS,

Circuit Judges.

JUDGEMENT

This cause came on to be heard on the

record on appeal and was argued by counsel.

ON CONSIDERATION WHEREOF, it is now

here ordered and adjudged by this Court that

7la

the judgment of the District Court in this

cause is reversed, and judgment is rendered

for Joyce Dennis.

IT IS FURTHER ORDERED that appellee pay

to appellant the costs on appeal to be taxed

by the Clerk of this Court.

July 13, 1994

ISSUED AS MANDATE: August 4, 1994