Klass v. Klass

WILNER, Judge. On June 29, 2001, the Circuit Court for Frederick County-entered a judgment that, among other things, divorced petitioner, Lawrence Klass, from his wife, Kathy, awarded to Kathy custody of the three minor children, $l,600/month alimony, $l,200/month child support, a $100,000 monetary award, the entire value of Lawrence’s profit sharing plan with Merrill Lynch, and $12,863 toward her attorney’s fee, established arrearages of pendente lite alimony ($28,800) and child support ($19,200), and reduced some of those directives to money judgments. The judgments were affirmed by the Court of Special Appeals, in an unreported opinion. We granted certiorari to consider two issues: whether the judgments should be vacated because certain pre-judgment orders and proceedings occurred during a period when an automatic stay under § 362 of the Bankruptcy Code ( 11 U.S.C. § 362 ) was in effect, and whether petitioner received adequate notice of the trial date.

We shall affirm in part and reverse in part the judgment of the intermediate appellate court. BACKGROUND The Klasses married in 1984, had three children, and separated on December 31, 1998. In April, 1999, Kathy filed a complaint for limited divorce based principally on allegations of cruel and harassing treatment by Lawrence but also alleged a voluntary separation. In addition to her request for limited divorce, she sought a panoply of ancillary relief.

In July, the court entered a pendente lite order that, among other things, granted sole custody of the children to Kathy, awarded her exclusive use and possession of the family home, directed Lawrence to return within 30 days all of the family use personal property that he had taken from the home, gave Kathy exclusive use and possession of all family use personal ¹⁷ property, directed that pendente lite child support be established in accordance with the child support guidelines, and appointed a guardian ad litem for the children. Both parties filed exceptions to the order but, in September, 1999, prior to a hearing on those exceptions, they reached an agreement, entered as a consent order, that confirmed most aspects of the pendente lite order and set the child support at $l,200/month and alimony at $l,600/month. Lawrence did not return the family use personal property, and he ceased his payments of alimony and child support about two months later. In September, 2000, he filed a complaint, in this action, for absolute divorce on the ground of voluntary separation.

Trial was initially scheduled for October 30, 2000, but, at Lawrence’s request, the trial date was postponed until January 3, 2001, apparently because Lawrence was in a mental institution in California. 1 On December 27, 2000 — just a week before trial was to commence — Lawrence filed, in California, a pro se petition for voluntary bankruptcy under Chapter 7 of the Bankruptcy Code. Lawrence did not initially list Kathy as a creditor on the schedules he filed in the bankruptcy proceeding; nor did he inform the Bankruptcy Court of the proceeding pending in Maryland. The court was notified of the bankruptcy on January 2, 2001, whereupon trial was postponed for three months. 2 Notwithstanding the bankruptcy proceeding and the automatic stay that proceeded from it pursuant to § 362, activity continued in the Circuit Court. After a status conference on January 3 — the date trial was to have occurred — Lawrence’s attorney withdrew her appearance, and a notice was sent to Lawrence to employ new counsel.

On January 17, 2001, the guardian who had been appointed for the children filed a ¹⁸ petition for counsel fees in the amount of $4,050. On February 15, the court granted the request and entered judgment against Lawrence for that amount. On January 20, Kathy mailed to Lawrence a set of interrogatories, a request for the production of documents, and a request for admission of facts. The interrogatories and requests were never answered.

On March 29, 2001, the court scheduled trial for April 30, and a notice to that effect, in the form of a subpoena duces tecum issued by Kathy, was sent to Lawrence in California by certified mail. The record contains a return receipt, although the signature on it, to us, is illegible. Although Lawrence contests the adequacy of the notice of trial, he does not dispute that he received that subpoena. On March 30, Lawrence’s bankruptcy lawyer sent formal notice to the court of the bankruptcy filing and that the bankruptcy court had entered a stay order pursuant to 11 U.S.C. § 362 .

Ten days later — on April 9, 2001 — Lawrence was granted a discharge by the bankruptcy court, although an order formally closing the case was not filed until August 7, 2001. Trial commenced, as scheduled, on April 30, 2001. Lawrence did not attend. He did, however, send to the court a “Declaration” stating that, on March 8, 2000, he had been found disabled by the Social Security Administration and that he had been receiving disability benefits since September, 2000.

Based on testimony by Kathy and by a corroborating witness, a statement by the children’s guardian, the consent pendente lite order, and admissions imputed to Lawrence by reason of the unanswered request for admissions, the court entered its judgment on June 29, 2001. The divorce was based not on the original allegations of cruel conduct but on a voluntary separation, which Lawrence had previously confirmed in his own complaint for divorce. Lawrence appealed, complaining, among other things, that the Circuit Court erred in continuing the divorce litigation after the filing of his bankruptcy petition and that he did not receive adequate notice of the April 30 trial date. Based on the subpoena sent to him by certified mail, the Court of ¹⁹ Special Appeals dismissed without much discussion the notice complaint.

It resolved the bankruptcy issue on the grounds that (1) actions to establish or modify alimony or child support are not subject to the § 862 stay and the fees ordered paid to the children’s guardian were in the nature of child support, (2) the stay does not preclude all judicial proceedings, but only those that affect or touch on the debtor’s property, and the discovery requests and subpoena sent by or on behalf of Kathy did not have that quality, and (3) a discharge terminates the § 362 stay, and, as the judgment entered by the court occurred after that date, it was not precluded by the stay. We granted certiorari to review those determinations. Kathy did not file a responsive brief and did not participate in oral argument. DISCUSSION I. Bankruptcy Stay Lawrence presses his argument that “[t]he continuation of the family law action, after [he] filed his bankruptcy petition, violated the automatic stay and, consequently, all subsequent acts that occurred in the litigation are void.” He urges that the stay mandated by 11 U.S.C. § 362 applies to all proceedings, whether or not the debt involved is dischargeable in bankruptcy, that all judicial activity in such proceedings is enjoined, and that any such activity undertaken in contravention of the stay — i.e., absent an order of relief from it — is void.

Although he recognizes that the stay does not apply to actions to establish or modify alimony or child support, he contends that the exception for those kinds of proceedings does not allow them to be coupled with any other non-exempt proceeding, and that, if they are so coupled, they too are stayed. As to the judgment itself, which was entered after the discharge, his position seems to be that (1) it is in violation of the discharge order, and (2) it is void because of the invalidity of all that led to it. ²⁰ A. Jurisdiction to Determine Effect of Stay Although neither party has raised this issue, there appears to be some split of authority among Federal courts over whether any court, other than the Bankruptcy Court in which the bankruptcy proceeding is, or was, pending, has jurisdiction to determine whether action taken or proposed to be taken in a case pending in another court is subject to the automatic stay of § 362. The clearly predominant rule is that jurisdiction is concurrent, and that the court in which the non-bankruptcy case is pending may determine the effect of the stay on that case. See In re: Middlesex Power Equipment & Marine, Inc., 292 F.3d 61, 66 (1st Cir.2002); In Re Baldwin-United Corp. Litigation, 765 F.2d 343, 347 (2nd Cir.1985); U.S. Dept. of Housing & Urban Dev. v. CCMV, 64 F.3d 920 , 927 (4th Cir.1995); Picco v. Global Marine Drilling Co., 900 F.2d 846, 850 (5th Cir.1990); N.L.R.B. v. Edward Cooper Painting, Inc., 804 F.2d 934, 939 (6th Cir.1986); In re Glass, 240 B.R. 782, 787 (Bkrtcy.M.D.Fla.1999); In re Montana, 185 B.R. 650, 652 (Bankr.S.D.Fla.1995); compare Gruntz v. County of Los Angeles, 202 F.3d 1074 (9th Cir.2000) (replacing 166 F.3d 1020 (9th Cir.1999)); Rainwater v. State of Alabama, 233 B.R. 126, 139 (Bankr.N.D.Ala.1999); In re Raboin, 135 B.R. 682, 684 (Bankr.D.Kan.1991); In re Sermersheim, 97 B.R. 885, 889 (Bankr.N.D.Ohio 1989).

We need not consider here whether, under the so-called Rooker-Feldman doctrine (Rooker v. Fidelity Trust Co., 263 U.S. 413 , 44 S.Ct. 149 , 68 L.Ed. 362 (1923); District of Columbia Court of Appeals v. Feldman, 460 U.S. 462 , 103 S.Ct. 1303 , 75 L.Ed.2d 206 (1983)), a State court decision resolving the effect of a § 362 stay on a matter otherwise within its jurisdiction is entitled to preclusive effect in the Bankruptcy Court or another Federal court. In conformance with the prevailing view, however, we conclude that a Maryland court has, and, indeed, must have, jurisdiction to determine, at least in the first instance, whether and how a matter properly pending before it is affected by a § 362 stay. The State court may not grant relief from the stay — that is a ²¹ matter committed exclusively to the Bankruptcy Court — but it may, when presented with the issue, determine whether, factually or legally, a stay is in effect and whether a particular action it is about to take or has already taken is subject to such a stay. Those determinations are, of course, reviewable on appeal.

The issue of whether the challenged actions of the Circuit Court were legally permissible is therefore properly before us. B. Merits of the Issue (1) Alimony and Child Support Section 362(a) provides that, when filed, a Chapter 7 bankruptcy petition operates as an automatic stay of a broad range of actions and proceedings against the debtor, among which are (1) “the commencement or continuation, including the issuance or employment of process, of a judicial ... action or proceeding against the debtor that was or could have been commenced before the [filing of the petition], or to recover a claim against the debtor that arose before the [filing of the petition],” (2) an act to obtain possession of or exercise control over any property of the bankruptcy estate, and (3) an act to collect, assess, or recover a claim against the debtor that arose prior to the filing of the petition. Section 362(c)(2) provides that the automatic stay continues until the earliest of three events, one of which, in a Chapter 7 bankruptcy, is the time a discharge is granted or denied. That occurred here on April 9, 2001 — three weeks before trial and more than two months before the judgment was entered.

No stay was in effect, therefore, at the time trial occurred or at the time judgment was entered. That does not, of itself, resolve the issue, however. The stay precludes the “continuation” of a judicial proceeding against the debtor that was commenced prior to the filing of the petition, and clearly this action continued in various ways while the stay was in effect. What we must examine is the effect that various acts that occurred during that period have on the ultimate judgment. ²² The stay is broad in scope and is intended to give the debtor a “breathing spell” from his/her creditors, to allow time to formulate a repayment or reorganization plan, and to prevent a chaotic and uncontrolled scramble for the debtor’s assets in a multitude of uncoordinated proceedings in different courts, by ensuring that all claims against the debtor, other than those exempted from the stay, will be brought in a single forum.

See Matter of Rimsat, Ltd., 98 F.3d 956 (7th Cir. 1996); In re Siciliano, 13 F.3d 748 (3rd Cir.1994); Dean v. Trans World Airlines, Inc., 72 F.3d 754 (9th Cir.1995), cert. denied, 519 U.S. 863 , 117 S.Ct. 169 , 136 L.Ed.2d 111 (1996); In re Meis-Nachtrab, 190 B.R. 302 (N.D.Ohio 1995); Matter of Garofalo’s Finer Foods, Inc., 186 B.R. 414 (N.D.Ill.1995); H.R.Rep. No. 595, 95th Cong., 1st Sess. 340-42 (1977); S.Rep. No. 989, 95th Cong., 2d Sess. 49-51 (1978). Although the stay is broad in scope, it is not unlimited.

There are both express exceptions and some implied limitations as to what it precludes. Section 362(b) lists a number of acts or proceedings that are expressly exempt from the stay, among which are (1) “the commencement or continuation of an action or proceeding for the establishment or modification of an order for alimony, maintenance, or support,” and (2) “the collection of alimony, maintenance, or support from property that is not property of the estate.” 11 U.S.C., § 362 (b)(2)(A)(ii) and (B). Under those provisions, a State court may proceed with an action to establish or modify an order for alimony or child support, and it may enforce the collection of alimony or child support if the collection is not from property that is part of the bankrupt estate. Acknowledging those exceptions, Lawrence suggests that they apply only when the action before the court is devoted exclusively to the establishment or modification of alimony or support, or to the collection thereof from non-estate property, and that, if any other form of relief subject to the stay is coupled with such a claim, the exceptions do not apply and the entire action is stayed.

This suggestion emanates from a statement in the House and Senate Reports that accompanied the Bankruptcy Reform Act of 1994, which, in § 304 of the ²³ bill, added the exception for proceedings to establish or modify alimony or support. In explaining that addition, the committees noted, in relevant part: “This section is intended to provide greater protection for alimony, maintenance, and support obligations owing to a spouse, former spouse or child of a debtor in bankruptcy. The Committee believes that a debtor should not use the protection of a bankruptcy filing in order to avoid legitimate marital and child support obligations. The section modifies several provisions of the Bankruptcy Code.

Subsection (b) specifies that the automatic stay does not apply to a proceeding that seeks only the establishment of paternity or the establishment or modification of an order for alimony, maintenance, and support.” (Emphasis added). House Report No. 103-835, Oct. 4, 1994, accompanying H.R. 5116; Senate Report No. 103-168, Oct. 28, 1993, accompanying S. 540, U.S.Code Congressional and Administrative News, 103rd Cong. Second Sess. (1994), Vol. 5 at 3363.

From the word “only,” Lawrence suggests that the exception is limited to the situation where the establishment or modification of alimony or support is the sole form of relief sought in the action. Lawrence cites no authority for that proposition, but, apart from the lack of authority, the suggestion is devoid of logic. Surely Congress was aware that claims for the establishment or modification of spousal or child support are routinely included in actions for divorce or annulment, in which other kinds of relief are also sought. If the coupling of other relief with those claims would serve to render the exception non-applicable, there would be little vitality to or reason for the exception.

Even pendente lite support could not be established or enforced. Neither common sense nor the statement of Congressional intent behind the exception supports such a reading. Although the exception for orders establishing or modifying alimony or support cannot be read to permit the court to grant other kinds of non-associated relief while a stay is in effect, it also cannot reasonably be read to preclude the very kind of relief it was ²⁴ intended to allow simply because other forms of relief are also sought in the action. Several parts of the court’s ultimate judgment fall within that exception.

The fixing of alimony and child support at $l,600/month and $l,200/month, respectively, and the determination of pendente lite arrearages were not precluded. Neither of those rulings constituted an attempt to collect alimony or child support from bankruptcy estate property. They constitute merely the “establishment ... of an order for alimony, maintenance, or support,” and the court was fully authorized to proceed to enter such an order even while the stay was in effect. We find no basis for disturbing those determinations.

The Court of Special Appeals concluded that the judgment entered against Lawrence for the fees declared payable to the guardian ad litem also fell within the statutory exception. We agree, but the matter bears some discussion. Alimony, support, and maintenance are dealt with in a number of contexts in the Bankruptcy Code. As noted, actions to establish or modify them or to collect them from non-estate property are excluded from the scope of the automatic stay under § 362(b).

Debts for those items are also non-dischargeable under § 523. Both sections embrace “alimony, maintenance, or support,” but neither speaks directly to whether fees payable to a guardian ad litem appointed to represent the interests of children in divorce, custody, or child support cases are to be regarded as child support. In one respect, the exemption in § 362(b) seems, at least facially, to be broader than that in § 523, which contains certain caveats not found in § 362(b). One of the caveats in § 523 is that non-dischargeability does not apply to the extent that “such debt includes a liability designated as alimony, maintenance, or support, unless such liability is actually in the nature of alimony, maintenance, or support.” 3 That provision necessarily requires a closer exam ²⁵ ination of the alimony or support order, to ensure that it does not include an obligation that, however denominated, is not actually in the nature of alimony, maintenance, or support.

One might suppose that a similar caveat should be implicit in § 362(b) as well, but it is not stated there, notwithstanding that both sections were amended by the same section of the same Act in 1994, for presumably the same purpose. Although there are some decisions to the contrary, the prevailing view among Federal courts and Bankruptcy Courts seems to be that, for purposes of § 523, judgments against a debtor for fees payable to a guardian ad litem appointed to represent the interests of minor children in a divorce, custody, or