United States District Court, E.D. Missouri, Eastern Division
MEMORANDUM AND ORDER
A. ROSS UMTED STATES DISTRICT JUDGE.
matter is before the Court on appeal from a Bankruptcy Court
order denying Debtor/Defendant/Appellant Matthew Erik
Hanis's motion for summary judgment, granting
Plaintiff/Appellee Meredith Friedman's motion for summary
judgment, and declaring that certain debts are
non-dischargeable, pursuant to 11 U.S.C. § 523(a)(15),
in Mr. Hanis's Chapter 7 bankruptcy proceeding. The
issues are fully briefed, and the Court heard oral argument
from counsel. For the following reasons, the Court affirms
the decision of the Bankruptcy Court.
following facts are undisputed. Mr. Hanis and Ms. Friedman
were married in 1995 (Bankr. Doc. 12 at ¶ 1). During
their marriage, they jointly owned a business, M&M RET,
LLC ("M&M") (Id. at ¶ 6). In
March 2010, the couple divorced (Id. at ¶ 4).
Pursuant to a Judgment of Dissolution of Marriage
("Divorce Decree") entered by the Circuit Court for
the County of St.
Missouri ("Circuit Court"), Mr. Harris would pay
Ms. Friedman $5, 000 per month in maintenance
(Id.¶ 5; Bankr. Doc. 12.1 at 5, 10). Mr.
Hanis's maintenance obligation was non-modifiable, and it
was to terminate only upon the death of either of the
parties, Ms. Friedman's remarriage, or final payment in
May 2020 (Bankr. Doc. 12.1 at 2, 5, 10). The Divorce
Decree further ordered that Ms. Friedman and Mr. Hanis would
each retain a 50% interest in M&M after the divorce
(Id. at 22-24; Bankr. Doc. 12 at ¶ 6). Notably,
the Divorce Decree also included the following provision:
Either party may buy the other out of his or her interest in
[M&M] by paying the other three times the last 12 months
of revenue or 50% of the net appraised value of said
business, whichever is larger. The selling party shall be
guaranteed that he/she shall be totally absolved of any debt
owed by said business and the buyer shall prove he/she has
been pre-approved for refinancing the business obligations to
remove the seller from liability with respect to said
(Bankr. Doc. 12.1 at 24).
March 12, 2012, Mr. Hanis agreed to purchase Ms.
Friedman's interest in M&M, and the parties executed
an "Agreement for Purchase of Membership Interest"
("Purchase Agreement") and a "Consent
Agreement" (together "the Agreements") (Bankr.
Docs. 12 at ¶¶ 7- 8; 12.2 (Consent Agreement) and
12.3 (Purchase Agreement)). Under the Purchase Agreement, Mr.
Hanis would pay a purchase price of $0 for Ms. Friedman's
membership interest, which the parties agreed
"represent[ed] the larger number between three times the
last 12 months of revenue and 50% of the agreed upon value of
[M&M]" (Bankr. Doc. 12.3 at ¶ 3). In exchange,
Mr. Hanis agreed (1) to release Ms. Friedman from her
obligation to operate M&M until his maintenance
obligation ceased; (2) to assume and hold Ms. Friedman
harmless on all obligations associated with certain,
then-known debts of M&M ("Business Debts"); (3)
to "release, acquit and forever discharge [Ms. Friedman]
from any and all claims, liabilities, demands, suits and
causes of action of every nature and kind . . . and [to] hold
[her] harmless for any obligation related to the Business
Debt"; (4) to "take all steps available and make
best efforts to remove [Ms. Friedman] from having any
liability whatsoever for the Business Debt"; and (5)
"[i]n the event that any action is brought against [Ms.
Friedman] for any claim involving the Business Debt, "
to "indemnify and hold [Ms. Friedman] harmless for any
and all such claims." (IdL at ¶¶ 4-5, 8). The
parties indicated in the Purchase Agreement that they
recognized and understood that it might not be possible to
remove Ms. Friedman from the Business Debts, but that
"nevertheless, [Mr. Hanis] shall release [Ms. Friedman]
from all obligations related to the Business Debt"
Consent Agreement, the parties initially recognized and
acknowledged that Mr. Hanis's maintenance obligation was
not modifiable according to the terms of the divorce decree;
that under the divorce decree, his maintenance obligation
could only be terminated upon the death of either party or
Ms. Friedman's remarriage or entry into a co-habitation
relationship; and that the Circuit Court could not terminate
or modify Mr. Hanis's non-modifiable maintenance
obligation (Bankr. Docs. 12 at ¶ 12; 12.2 at 1). The
Consent Agreement indicates that the parties nonetheless
desired to enter into the Consent Agreement to modify Mr.
Hanis's maintenance obligation to Ms. Friedman and to
release and indemnify Ms. Friedman from the Business Debts
(Bankr. Doc. 12.2 at 1). The Consent Agreement purports to
modify Mr. Hanis's maintenance obligation by lowering it
from $5, 000 per month to $3, 700 per month; changing the
final payment date from May 2020 to June 2019; and extending
the obligation beyond Ms. Friedman's remarriage should
she remarry before January 2018, albeit in lesser amounts as
set forth in an agreed-upon payment schedule (Bankr. Docs. 12
at ¶¶ 11, 13-14; 12.2 at 1-2). Ms. Friedman
remarried in November 2012 (Bankr. Doc. 24.1 at ¶ 20).
1, 2013, Mr. Hanis filed a petition for relief under Chapter
7 of the Bankruptcy Code, seeking discharge of, inter alia,
the Business Debts. In re Hanis, No. 13-46113
(Bankr. E.D. Mo. July 1, 2013). On February 4, 2014, Ms.
Friedman initiated the adversary proceeding underlying the
instant appeal, seeking an order declaring that the Business
Debts are non-dischargeable in Mr. Hanis's Chapter 7
proceeding, pursuant 11 U.S.C. § 523(a)(15), because
they were incurred in connection with the parties'
divorce (Bankr. Doc. 1). As relevant, § 523(a)(15)
prevents a debtor from discharging in bankruptcy debts he
incurred "in connection with a separation agreement,
divorce decree or other order of a court of record." Mr.
Hanis filed an answer, denying that the Business Debts were
incurred "in connection with a separation agreement,
divorce decree or other order of a court" within the
meaning of § 523(a)(15) (Bankr. Doc. 7), and a
counter-claim seeking a declaration that the Business Debts
were dischargeable (Bankr. Doc. 8).
30, 2014, the parties filed cross-motions for summary
judgment (Bankr. Docs. 18-21). In her motion for summary
judgment, Ms. Friedman first argued in favor of a narrow
construction of § 523(a)(15)'s exception to
discharge. (Doc. 21 at 3-4). She asserted that Mr. Hanis
incurred the Business Debts "in connection with"
their divorce decree because the Agreements modified the
parties' obligations under the Divorce Decree
(Id. at 4-9). Ms. Friedman emphasized that the
Consent Agreement refers to the Divorce Decree nine times,
that it modifies Mr. Harris's maintenance obligation as
well as the parties' relative ownership interests in
M&M, and that it requires Mr. Hanis to hold her harmless
and to indemnify her from the Business Debts (Id.at
6-8). Ms. Friedman further argued that the fact that two
years elapsed between the Circuit Court's entry of the
divorce decree and the parties' execution of the
Agreements does not render the Business Debts
non-dischargeable under § 523(a)(15) (Id. at
9-10). In her view, the issue of whether a debt is incurred
"in connection with" a divorce decree does not
depend on the timing of a post-divorce agreement between
ex-spouses, but turns instead on the nature of the debt
incurred in the agreement (Id; Bankr. Doc. 23 at 2-5).
support of her motion for summary judgment, Ms. Friedman
cited extensively to Woosley v. Woosley, No.
3:09-0910, 2010 WL 500423, at *4 (M.D. Tenn. Feb. 5, 2010).
In Woosley, the parties' divorce decree provided
that each party would retain an interest in a business they
had owned and operated during their marriage. Id. at
*2. Less than four months after the divorce decree was
entered, Mr. Woosley agreed to purchase Ms. Woosley's
interest in the business and, in exchange, agreed to make
monthly payments to her for ten years. Id. Mr.
Woosley thereafter filed for relief under Chapter 7 of the
Bankruptcy Code, seeking discharge of the business's
debts and his monthly payment obligation to Ms. Woosley,
Id. at 3. In affirming the bankruptcy court's
finding that the debts were non-dischargeable under §
523(a)(15), the district court initially emphasized that the
purchase agreement referred to the divorce decree several
times. Id. at *2, 6. The district court
further noted that the purchase agreement had not changed the
nature of Mr. Woosley's obligation to Ms. Woosley, as he
had essentially reaffirmed his obligation to her and his
commitment that the business would provide her with a source
of revenue "even if the revenue came in a somewhat
different form, " i.e. as monthly payments toward the
purchase as opposed to a salary paid by the business.
Id. at *7. The district court also concluded that
basic principles of equity and fairness suggested that the
debt should not be dischargeable. Id. at *7-8. The
district court thus affirmed the bankruptcy court's
conclusion that Mr. Woosley had incurred a debt, the monthly
payments, "in connection with" his divorce decree
and that the debt was therefore non-dischargeable under
§ 523(a)(15). Id. at *8.
summary judgment motion, Mr. Hanis characterized the
Agreements as a post-divorce business transaction that was
unrelated to the Divorce Decree (Bankr. Doc. 19 at 8-14). In
Mr. Hanis's view, the Agreements "involve the sale
of a business that just happened to be owned by former
spouses, and the Business Debt that was created by the
Agreements did not arise from Mr. Hanis and Ms.
Friedman's status as ex-spouses, but rather as
ex-business associates" (Id. at 13-14; Bankr.
Doc. 22 at 2-4). Mr. Hanis further argued that the Consent
Agreement did not modify the Divorce Decree because,
according to its express terms, the Divorce Decree was
non-modifiable (Bankr. Doc. 22 at 4).
Hanis emphasized that Woosley was decided by the
Eastern District of Tennessee and thus was not binding on the
Bankruptcy Court, and sought to distinguish it (Id.
at 3-4). He noted that, in Woosley, only four months
elapsed between the entry of the divorce decree and the
Woosleys' business agreement, and that, in contrast, two
years elapsed in the instant case (Id. at 3).
Second, he argued that the divorce decree in Woosley
actually divided the marital business, thereby creating the
plaintiffs ownership interest and a source of revenue for her
support. (Id.) In Mr. Hanis's view, Ms. Friedman
did not rely on revenue from M&M because the Divorce
Decree separately awarded her child support and maintenance
(Id. at 4). Mr. Hanis contended that the Agreements
therefore did not simply reaffirm a pre-existing marital debt
but instead created a new debt more than two years after Mr.
Hanis and Ms. Friedman divorced (Id.).
the pendency of the bankruptcy proceedings, the parties also
filed the following motions in their Circuit Court divorce
proceeding: Ms. Friedman filed a motion to modify the Divorce
Decree in December 2013; Mr. Hanis filed a counter-motion to
modify the Divorce Decree in March 2014; and Ms. Friedman
filed a Motion to Determine Amounts Due and Owing and Motion
for Contempt in July 2014 (Doc. 24.1 at ¶¶ 7-9). In
these motions, Mr. Hanis sought to terminate his maintenance
modification retroactively to November 2012, when Ms.
Friedman remarried, and Ms. Friedman sought to enforce the
Consent Agreement to the extent it purported to extend Mr.
Hanis's maintenance obligation beyond her November 2012
remarriage pursuant to the agreed-upon payment schedule
(Id. at ¶¶ 7-9, 21-22).
9, 2015, the Circuit Court entered Findings of Fact,
Conclusions of Law, and Modification Judgment ("Circuit
Court Order") in the divorce proceeding, which included
the following relevant findings:
17. Neither party filed a Motion to Modify the [divorce
decree] prior to entering into the Consent Agreement.
Further, neither party filed the Consent Agreement with the
[Circuit] Court or sought judicial approval of the Consent
18. The Consent Agreement was never incorporated into or made
a part of the [divorce decree] and, therefore, did not modify
[the divorce decree].
19. Inasmuch as the Consent Agreement was not incorporated
into the decree, it may be subject to independent enforcement
via a breach of contract action, but is not subject to
enforcement by [the Circuit Court]. Koster ...