Court: United States Bankruptcy Court, E.D. Tennessee; December 15, 1982; Us Bankruptcy; United States Bankruptcy Court
Cross motions for summary judgment have been filed in a dischargeability action involving a judgment in favor of John Harrison Hill against Theodore Wesley Hill, the debtor. The plaintiffs argue that this judgment, originally obtained on July 21, 1950, and timely renewed, should be exempt from discharge under 11 U.S.C. § 523(a)(2)(A) due to alleged false pretenses and fraud. They claim that a previous state court decision serves as res judicata on the issue of dischargeability. The debtor counters that the res judicata doctrine does not apply and asserts that the plaintiff law firm, Ambrose, Wilson and Grimm, lacks standing since they are not his creditor.
The debtor filed a voluntary Chapter 7 petition on June 25, 1982, listing no other unsecured creditors aside from the heirs of John H. Hill. No heirs have requested the judgment’s exception from discharge. The only proof of claim submitted identifies Ambrose, Wilson, Grimm and David Benner, as creditors with a claim of $50,933.25, filed on July 22, 1982. A complaint to determine dischargeability followed, naming the same plaintiffs.
David Benner, the Administrator Ad Litem for the estate, believed his role concluded with the March 17, 1982, judgment renewal and has not engaged with the heirs or pursued action regarding the debtor’s estate. Consequently, Ambrose, Wilson and Grimm appear as the sole plaintiffs seeking to except the judgment from discharge. The court must first ascertain whether the law firm qualifies as a creditor. If not, it must evaluate whether they can petition to except a debt owed to a third party from discharge.
The original Final Decree from July 21, 1950, awarded John Harrison Hill $7,000 plus interest and attorney fees, confirmed by a Tennessee Court of Appeals order on January 10, 1951, which recognized a lien for the law firm's fees. Theodore Wesley Hill previously filed a bankruptcy petition on January 7, 1952, listing three debts, excluding the plaintiff as a creditor. A discharge was granted on April 30, 1952. John H. Hill later sought to renew the judgment on March 5, 1960, to which the debtor responded by referencing his prior bankruptcy discharge.
The Knox County Chancellor determined that the judgment in question is nondischargeable, supported by a Final Decree dated April 18, 1962, which was upheld by the Court of Appeals of Tennessee. This decree allowed a lien for reasonable attorney fees to Ambrose, Wilson, and Saulpaw, the attorneys of record. The judgment was renewed on September 9, 1971, by John H. Hill, who later died, prompting a third renewal on March 17, 1982, on behalf of his estate. Importantly, none of the decrees indicate that the debtor owes any debt to the plaintiff. The Court of Appeals issued two decrees that imposed a lien for the plaintiff against the judgment. While an attorney can establish a lien on a client's cause of action, this does not create a debt owed by the debtor to the attorney. Consequently, the plaintiff, lacking creditor status regarding the debtor, cannot seek a dischargeability determination for an obligation to a third party. Bankruptcy Rule 409(a) specifies that only a bankrupt or creditor can file for dischargeability determinations, reaffirming that a party must have creditor status to contest dischargeability. The court denied the plaintiff's motion for summary judgment and granted the debtor’s motion. Additionally, the plaintiffs argued that the debtor was barred from relitigating dischargeability under res judicata or collateral estoppel doctrines. The court noted that the language of Rule 409(a) is broad but should be limited, asserting that only creditors with their own debts have standing to file such complaints. The court's conclusion aligns with the legislative history of the Bankruptcy Code and does not contradict Second Circuit precedents.
In Spong, the debtor agreed to pay part of his ex-wife's legal fees from their contested divorce, a provision included in the final divorce judgment. The bankruptcy court ruled that these fees, while resembling alimony, were not owed to a spouse or child, thus not exempt from discharge. This ruling, affirmed by the district court, also stated that the attorney lacked standing to contest the discharge. However, the court of appeals found that the debtor’s commitment to pay the attorney fees constituted a third-party beneficiary contract. In contrast, the debtor in the current case did not promise to pay any fees to the plaintiff. The Rules of Bankruptcy Procedure outline who may request a determination of dischargeability, as specified in 11 U.S.C. § 523(c), which mandates that a creditor must initiate proceedings to prevent the discharge of debts eligible for exception; failure to do so results in automatic discharge of the debt.
