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In re Hanis

United States District Court, E.D. Missouri, Eastern Division

August 8, 2017

MATTHEW ERIK HANIS, Defendant/Appellant. MEREDITH FRIEDMAN, Plaintiff/Appellant,



         This 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.


         The 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.

         Louis, 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).[1] 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 obligations.

(Bankr. Doc. 12.1 at 24).

         On 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" (Id.¶ 4).

         In the 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).[2] Ms. Friedman remarried in November 2012 (Bankr. Doc. 24.1 at ¶ 20).

         On July 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).

         On July 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 ( 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).

         In 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.

         In his 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).[3] 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).

         Mr. 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.).

         During 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).

         On June 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 Agreement.
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 ...

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