ERSPAN v. BADGETT

Rehearing En Banc Denied October 9, 1981.

SAM D. JOHNSON, Circuit Judge:

This is an action to enforce the terms of a 1963 divorce decree that awarded to plaintiff one-half of defendant's accumulated right under a United States Army retirement benefits program. Following a nonjury trial, the district court awarded plaintiff accrued and unpaid benefits in the amount of $34,641.90 plus interest from the date of judgment, and ordered defendant to maintain with the United States Army an allotment order providing for the payment directly to plaintiff of her one-half share of all future payments to which she is entitled. The district court also permanently enjoined defendant from proceeding with his civil contempt action against plaintiff in the United States District Court for the Eastern District of Missouri, Southeastern Division, the court from which defendant obtained a discharge in bankruptcy in 1973. The judgment of the district court is affirmed.

I.

Plaintiff and defendant were divorced in 1963. The divorce decree, which was rendered in the state district court in El Paso, Texas, provided in part that defendant's accumulated right to United States Army retirement benefits was community property, and, as such, was the joint property of plaintiff and defendant upon divorce. The decree ordered defendant to execute all documents necessary to accomplish the payment directly to plaintiff of her one-half share of each payment made after defendant's retirement from the Army, and provided that defendant was personally responsible to plaintiff for such payments in the event that they could not be made directly to her by the Army.

Shortly after the divorce, defendant retired from the Army. He paid to plaintiff one-half of his military retirement benefits from the date of his retirement through March 1967; he has paid nothing to plaintiff since that time. In 1971, plaintiff obtained a judgment against defendant for accrued benefits due her in the amount of $8,606.28. The judgment was entered by the state district court in Denton County, Texas. This judgment was affirmed by the Texas Court of Civil Appeals in Badgett v. Erspan, 476 S.W.2d 381 (Tex.Civ.App. — Fort Worth 1972, no writ), but defendant has not paid it. No execution has ever been requested or issued on the Denton County judgment.

In 1972, defendant filed a petition in bankruptcy in the United States District Court for the Eastern District of Missouri, Southeastern Division. He listed among his debts plaintiff's 1971 Denton County judgment as well as the El Paso divorce decree. Plaintiff received notice of the petition in bankruptcy, but filed no claim in the bankruptcy proceedings, and did not object to the discharge in bankruptcy that defendant obtained thereby.

Jurisdiction in the case sub judice is predicated upon diversity of citizenship, 28 U.S.C. § 1332. Plaintiff seeks from defendant her share of the retirement benefits paid by the government to defendant, but not forwarded to her, since June 10, 1967, the date of the Denton County judgment. Plaintiff also seeks an order that will ensure her ability to receive future retirement benefits to which she is entitled. In response, defendant argues that his 1973 discharge in bankruptcy absolved him of any liability to plaintiff for either past or future retirement benefits.

Following submission of the instant case to the federal district court, defendant instituted contempt proceedings against plaintiff in the Missouri bankruptcy court from which he obtained his discharge, alleging that, by bringing the present action, plaintiff had violated an injunction that arose by operation of law from defendant's discharge in bankruptcy. The federal district court in the present case temporarily enjoined defendant from prosecuting the Missouri contempt proceeding, and subsequently held that defendant's discharge in bankruptcy did not affect his liability to plaintiff for either past or future retirement benefits. Consequently the court ordered defendant to pay to plaintiff $34,641.90 plus interest, which represents one-half of the benefits accrued from June 10, 1971, to the date of the federal district court's judgment herein. The court also ordered defendant to execute and keep in full force and effect with the United States Army an allotment order directing the Army to pay directly to plaintiff one-half of all future retirement benefits. Finally, the district court entered a permanent injunction preventing defendant from proceeding with his contempt action in the Missouri bankruptcy court.

On appeal, defendant argues (1) that the federal district court erred in holding that his 1973 discharge in bankruptcy did not extinguish plaintiff's claim to one-half of defendant's military retirement benefits, (2) that even if the obligation to plaintiff was exempt from discharge under former section 17(a)(7) of the Bankruptcy Act, that provision is unconstitutional on equal protection grounds, and (3) that the district court erred in enjoining defendant from proceeding in the bankruptcy court because that court has jurisdiction to determine dischargeability. Although defendant challenges on appeal the district court's determination that his discharge did not extinguish plaintiff's right to her share of the retirement benefits, he elected not to appeal the district court's award of $34,641.90 representing her share of benefits that defendant already has received.1

II.

Section 17(a)(7) of the Bankruptcy Act of 1938,2 former 11 U.S.C. § 35(a)(7), provided in part:

In In re Nunnally, 506 F.2d 1024 (5th Cir. 1975), this Court explored the relationship between Texas community property law, military retirement benefits, and section 17(a)(7). In that case, the former wife was awarded in the divorce proceeding, inter alia, a lien upon her ex-husband's Navy retirement benefits to secure payment of $46,779.41 which represented an advance to the community from her separate estate. Shortly thereafter, the ex-husband filed a petition in bankruptcy, and both the bankruptcy referee and the district court determined that the former wife's right to the retirement benefits was a dischargeable debt. On appeal, the issue presented to this Court was whether the former wife's right to the $46,779.41 awarded by the divorce court, and secured by the lien on the retirement benefits, was a dischargeable debt, or whether it was exempt from discharge under section 17(a)(7). This Court, although recognizing that alimony after divorce is not permitted in Texas, Francis v. Francis, 412 S.W.2d 29, 32 (Tex.1967), also noted that under the scheme of the Texas Family Code, a divorce court is authorized to divide the separate and community property between the parties in a just and equitable manner, and that

506 F.2d at 1026, (emphasis in original), quoting Cooper v. Cooper, 513 S.W.2d 229, 233-34 (Tex.Civ.App. — Houston [1st Dist.] 1974, no writ). The Court also observed that, under Texas law, the future support of a former spouse "can play a significant role in the divorce court's property division and that what may appear to be a mere division of assets may in fact, under a Texas decree, contain a substantial element of alimony-substitute, support or maintenance, however, termed," 506 F.2d at 624. Finally, this Court noted that the Texas Supreme Court has recognized that support payments, although considered alimony in other states, are not so characterized in Texas. See Francis v. Francis, 412 S.W.2d at 32-33. Consequently, this Court determined that, for purposes of interpreting the federal bankruptcy laws, a federal court is not bound by the label that a state attaches to an award, but rather must look to its substance, and held that the award fell within the exception from discharge contained in section 17(a)(7). 506 F.2d at 1027.

Relying upon Nunnally, the district court in the case sub judice held that plaintiff's right to her share of defendant's retirement benefits was a nondischargeable obligation for "alimony due or to become due, or for maintenance or support" under section 17(a)(7). In Matter of Crist, 632 F.2d 1226 (5th Cir. 1980), which also involved the question of nondischargeability under section 17(a)(7), this Court stated:

quoting Matter of Bardwell, 610 F.2d 228, 230 (5th Cir. 1980).

Defendant argues that, although correct at the time it was decided, Nunnally has been undermined by subsequent decisions holding that, for purposes of the federal government's consent to suit, a division of military retirement benefits in a Texas decree is not "alimony" within the meaning of the Social Security Act, 42 U.S.C. §§ 659, 662(c). See United States v. Stelter, 567 S.W.2d 797 (Tex.1978); see also Marin v. Hatfield, 546 F.2d 1230 (5th Cir. 1977). Defendant's reliance upon the principle espoused in Stelter and Marin is misplaced. First, it is significant that neither decision involves the Bankruptcy Act; moreover, in neither decision did the Court mention, much less disapprove, this Court's decision in Nunnally.

Of more substance is the fact that the rule expressed in Stelter and Marin is inapposite to the question presented in Nunnally and in the case sub judice. In Stelter and Marin the courts held that, for purposes of determining the extent of the federal government's consent to suit, military retirement benefits awarded under a Texas decree are not "alimony" under Texas law. In Nunnally, however, this Court addressed the separate and distinct question of whether, for purposes of applying the federal bankruptcy laws, such benefits, although not "alimony" under state law, nonetheless may contain a substantial element of "alimony-substitute, support or maintenance, however termed." 506 F.2d at 1024.3 The Court's affirmative answer in Nunnally is supported both by reason and precedent. In Matter of Crist, 632 F.2d at 1232, this Court reiterated the well-established policy of "liberal construction of the Bankruptcy Act in light of the purpose of the provision under consideration." Also in Crist, this Court stated the purpose underlying section 17(a)(7) as follows:

632 F.2d at 1233; quoting Wetmore v. Markoe, 196 U.S. 68, 25 S.Ct. 172, 175, 176, 49 L.Ed. 390 (1904). The essence of this Court's decision in Nunnally is that, regardless of how a state may choose to define "alimony," a federal court, for purposes of applying the federal bankruptcy laws, is not bound to the label that a state affixes to an award, and that, consistent with the objectives of federal bankruptcy policy, the substance of the award must govern. 506 F.2d at 1027. In the present case, as in Nunnally, the award contains an element of "alimony substitute, support or maintenance, however termed." 506 F.2d at 1024. Consequently, the district court's finding that plaintiff's right to her share of defendant's retirement benefits was nondischargeable under section 17(a)(7) is not clearly erroneous, and must be affirmed.

III.

By way of alternative argument, defendant asserts that even if the section 17(a)(7) exemption from discharge applies to the award in this case, that statute nonetheless is unconstitutional, and an exemption from discharge should not be recognized. Defendant argues that section 17(a)(7) creates a gender-based classification in violation of the equal protection component of the fifth amendment because it exempts from discharge only those obligations "for alimony due or to become due, or for maintenance or support of wife or child ...." (emphasis added). This argument was raised in Matter of Crist, 632 F.2d 1226 (5th Cir. 1980). In Crist this Court acknowledged that the sex-based classification contained in section 17(a)(7) was constitutionally infirm, but held that the appropriate remedy was not to strike down the entire statute, but rather to extend the benefits of section 17(a)(7) to the excluded class, i. e., to allow both former husbands and wives receiving alimony or maintenance or support to assert the nondischargeability of the ex-spouse's obligation under section 17(a)(7). Consequently, defendant's argument to the contrary must be rejected.

IV.

Finally, defendant argues that because a bankruptcy court has jurisdiction to determine the dischargeability of a debt, the district court in the case sub judice erred in permanently enjoining defendant from proceeding against plaintiff for civil contempt in the Missouri bankruptcy court. This argument cannot be sustained. Although subsection 17(a)(2) of the former Bankruptcy Act enumerated certain categories of debts for which dischargeability could be determined only in the bankruptcy court, and section 14(f)(2) provided for an injunction against proceedings in other courts to enforce those obligations, the 1970 amendments to the Act moved claims for alimony, maintenance and support from subsection 17(a)(2) to 17(a)(7), and thereby provided that, with regard to those claims, the bankruptcy court possessed only concurrent jurisdiction with other courts and no injunction prevented the subsequent assertion of those claims. See 1A Collier on Bankruptcy ¶¶ 14.69, 17.01, 17.18, 17.22A (14th ed.).4 Inasmuch as defendant's discharge did not operate to enjoin plaintiff from litigating the issue of nondischargeability under section 17(a)(7) in the present action, defendant's civil contempt proceeding in the bankruptcy court constituted nothing more than an attempt to relitigate the district court's determination of nondischargeability in that forum. Consequently, once the district court in the case sub judice determined that defendant's obligation to plaintiff was not dischargeable, the court properly acted to prevent the relitigation of that issue in the bankruptcy court.5 28 U.S.C. § 1652; see Villarreal v. Brown Express, Inc., 529 F.2d 1219, 1222 (5th Cir. 1976). Consequently, the district court did not err in enjoining defendant from proceeding against plaintiff in the bankruptcy court.

AFFIRMED.