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Trentadue v. Gay (In re Trentadue)

In re Trentadue, No. 15-CV-388 (7th Cir. Sept. 14, 2016) (unpublished).
In the bankruptcy context, attorney’s fees awarded relating to a child support case constitutes a priority, non-dischargeable domestic support obligation under 11 U.S.C. § 507(a)(1).
Procedural context:
The Debtor and his wife divorced in 2007 and a three-year long child support battle ensued. The Wisconsin state court awarded the ex-wife $25,000 in attorney’s fees due to “overtrial”, because the Debtor had raised multiple issues that did not need to be addressed protracting the litigation well beyond what was necessary. The Debtor failed to pay the attorney’s fees and filed for chapter 13 bankruptcy. At the same time, the Debtor had appealed the award to the court of appeals, but it affirmed the judgment. The Wisconsin Supreme Court declined to hear his case. Gay, the ex-wife’s attorney, filed a $25,000 claim asserting that it was exempt from discharge and domestic support obligations under 11 U.S.C. §§ 1328(c)(2), 523(a), and with priority under 11 U.S.C. § 507(a)(1). The Debtor argued the claim should be discharged, because it did not constitute a DSO (Domestic Support Order) and the award was more like a punishment. The bankruptcy court allowed Gay’s claim as a DSO. The court reasoned the award was not a punishment. On appeal, the Debtor based his objection on two arguments: (1) an overtrial award can never be a DSO because it is not payable to his spouse, former spouse, child, or a caregiver and (2) an overtrial award is intended to be a punishment not in the nature of support under 11 U.S.C. § 101(14A). The Seventh Circuit never reached the merits of the first issue, as the Debtor had failed to raise such argument before the bankruptcy court or district court. On the second issue, the court rejected Debtor’s suggestion to apply a de novo standard of review, because this issue involved a court’s classification determination and not a legal conclusion. Instead, the Seventh Circuit chose clear error as the appropriate standard. Under § 101(14A) there are four requirements, but the only one challenged here was subsection (B) regarding whether the debt is “in the nature of … support (including assistance provided by a governmental unit) of such spouse, former spouse, or child of the debtor or such child’s parent, without regard to whether such debt is expressly so designated.” Applying federal bankruptcy law, the Seventh Circuit held the claim classified as a DSO when looking to the intent of the state court when it rendered its judgement and fee award. The Seventh Circuit determined the state court’s intent by analyzing three factors: “(1) the language and substance of [the judgment] in the context of the surrounding circumstances, using extrinsic evidence if necessary; (2) the parties’ financial circumstances at the time of [the judgment]; and (3) the function served by an obligation at the time of [the judgment].” First, the Seventh Circuit disagreed this was a punishment against the Debtor calling his litigation efforts “scorched-earth,” and agreed that ordering him to pay half of the ex-wife’s legal bill would prevent any financial harm. The court further reasoned that an order must be viewed in its entirety to construe the court’s intent, and while education and medical decisions were discussed the main point of the case remained that of custody. Second, the Seventh Circuit disagree with the debtor’s contentions that his financial circumstances had not been taken into consideration. The court explained that both his ex-wife’s and his finances were analyzed, and the court found that his income was between six and seven thousand dollars per month, enough to pay the award. Finally, quoting In re Attorney’s Fees in Yu v. Zhang, 637 N.W.2d 754 (Wis. Cit. App. 2001), the court explained that an award for attorney’s fees serves as a function of obligation with two objectives, to compensate overtrial victims and to deter unnecessary use of judicial resources.
The Wisconsin state court found Trentadue (the “Debtor”) had caused overtrial in a custody and child support battle, and the court awarded Trentadue’s ex-wife $25,000 in attorney’s fees. The Debtor never paid the fees and filed for bankruptcy. Gay, the ex-wife’s attorney, countered by filing a $25,000 claim stating that the award was a nondischargeable, domestic support obligation (“DSO”) entitled to priority. The Debtor argued the award was not a DSO, but a punishment. The bankruptcy court held the award was a DSO. Trentadue appealed, but the district court affirmed.
Kanne, Ripple, and Williams.

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