In re Mayer

451 B.R. 702

In re Cynthia MAYER, Debtor.

No. 10–15170.

United States District Court, E.D. Michigan, Southern Division.

June 24, 2011.

ORDER

JULIAN ABELE COOK, JR., District Judge.

This case relates to an appeal by Cynthia Mayer who contends that the Bankruptcy Court for the Eastern District of Michigan granted a legally incorrect decision in the form of a summary judgment in favor of Gilbert Gugni, Arnold Garber, and the law firm of Giarmarco, Mullins & Horton, P.C. (collectively, “Creditors”). The underlying action arose out of an adversary proceeding by Mayer who had unsuccessfully sought to avoid certain liens—as preferential transfers—that had previously been granted in favor of the above-named Creditors. See Opinion Granting Defs.' Mot. for Summ. J., No. 09–60538, (Bankr.E.D.Mich. Dec. 16, 2010), Bankr.Docket No. 30 (“Bankruptcy Opinion”).

I.

On February 19, 2008, Mayer filed for a divorce from her now-former husband in the Oakland County Circuit Court of Michigan (“Oakland Circuit”). In those proceedings, she was represented by Gilbert Gugni of Giarmarco, Mullins and Horton, P.C. After nearly a year of litigation, the parties agreed to arbitrate their claims before Arnold Garber, who had been chosen by them to serve as the arbitrator in their dispute. Thereafter, Garber issued a binding arbitration report and award that was subsequently used by the Oakland Circuit in rendering its judgment of divorce on June 4, 2009. Among the provisions within this judgment was a requirement that Mayer pay the Creditors' costs and fees, with the funds to come from the liquidation of a portion of her individual retirement account (“IRA”). The relevant provisions of the judgment contained the following language:

76. IT IS FURTHER ORDERED AND ADJUDICATED that [Mayer] shall forthwith liquidate and turn over Fifty Thousand ($50,000.00) Dollars of her H & R Block IRA accounts ... to her attorney Gilbert Gugni, who shall disburse the funds as follows:

A. The balance, if any, of fees owed by [Mayer] to Arbitrator Arnold Garber, which shall be first paid.

B. The balance, if any, of fees owed by [Mayer] to her attorney, Giarmarco, Mullins & Horton, P.C., shall then be paid.

C. The estimated funds necessary to pay any tax liabilities shall then be paid.

D. The balance of the funds, if any, shall be paid to [Mayer].

96. IT IS FURTHER ORDERED AND ADJUDICATED that each party shall pay the balance of his/her respective attorney fees forthwith and each attorney shall retain a lien on his client's share of the marital assets to insure payment of his fee.

97. IT IS FURTHER ORDERED AND ADJUDICATED that the parties shall each pay the balance of the fees that he/she owed to Arbitrator Arnold Garber. The Arbitrator shall retain a lien on each party's share of the marital assets to insure payment of his fees.

(J. of Divorce, Copy at Compl., Ex. C, Bankr.Docket No. 1–3).

Twenty-six days after the judgment of divorce was entered, Mayer filed a petition for relief under Chapter 7 of the Bankruptcy Code. Thereafter, she initiated an adversary proceeding against the Creditors in which she sought to avoid, as preferential transfers, the liens in paragraphs 96 and 97 of the judgment. The Creditors filed a counter-claim in which they argued that, by virtue of paragraph 76, the IRA assets and their proceeds were impressed with a constructive trust, and therefore were not subject to Mayer's preference efforts. When the parties were unable to resolve their differences amicably, they filed cross motions for summary judgment, which were ultimately resolved by the Bankruptcy Court in favor of the Creditors. In relevant part, the Bankruptcy Court opined as follows:

[T]here is no genuine issue of material fact that (1) the award described in paragraph 76 in the Divorce Judgment is, or [is] sufficiently tantamount to, a pre-petition judicial decision impressing a constructive trust upon $50,000 worth of proceeds from [Mayer's] IRA for the benefit of Creditors and (2) there is no need under Michigan law for the judgment of divorce to use the words “constructive trust” in order for there to be a trust. Therefore, those proceeds cannot be the subject of an avoidance action under § 547(b).

(Bankr.Op. at 10–11, Bankr.Docket No. 30). This appeal by Mayer followed.

II.

A federal district court has jurisdiction to hear appeals—and an aggrieved litigant may appeal as of right—from “final judgments, orders, and decrees” of a bankruptcy court. 28 U.S.C. § 158(a)(1). A bankruptcy court order in which a summary judgment is granted is a final appealable order. Drown v. Nat'l City Bank (In re Ingersoll), 420 B.R. 414, 414–15 (6th Cir. BAP 2009). On appeal, this Court possesses the authority to review a bankruptcy court's findings of fact for clear error and its conclusions of law de novo. Made in Detroit, Inc. v. Official Cmte. of Unsecured Creditors of Made in Detroit, Inc. (In re Made in Detroit, Inc.), 414 F.3d 576, 580 (6th Cir.2005); see also Fed. R. Bankr.P. 8013 (“On an appeal the district court or bankruptcy appellate panel may affirm, modify, or reverse a bankruptcy judge's judgment, order, or decree or remand with instructions for further proceedings. Findings of fact, whether based on oral or documentary evidence, shall not be set aside unless clearly erroneous, and due regard shall be given to the opportunity of the bankruptcy court to judge the credibility of the witnesses.”).

III

In her appellate brief, Mayer argues that the Bankruptcy Court (1) committed error when it found that Michigan law impressed her IRA proceeds with a constructive trust, and (2) should have determined that the designated liens within the judgment of divorce were avoidable as preferential transfers pursuant to 11 U.S.C. § 547(b).

With respect to the first prong of her argument, Mayer contends that (1) the divorce court was without authority to grant a separate property interest in the IRA to the Creditors; (2) the Creditors are not entitled to a constructive trust by operation of Michigan law because (a) none of them contributed to the acquisition, improvement, or accumulation of the IRAs and (b) she did not wrongfully acquire the IRAs at the expense of the Creditors; (3) the equitable doctrine of constructive trust is not available where, as here, there exists an adequate remedy at law; and (4) impressing an exempt IRA with a constructive trust violates public policy.

In response, the Creditors initially raise two procedural or jurisdictional arguments; to wit, that (1) some of Mayer's arguments, which were not raised before the Bankruptcy Court, have not been preserved for argument before this Court; and (2) pursuant to the Rooker–Feldman doctrine, this Court does not have jurisdiction to consider any contention that the divorce court made an improper award. The Creditors also dispute each of Mayer's arguments on the merits, and argue that the Bankruptcy Court's determination was substantively correct.

IV.

A.

The Creditors argue that, because Mayer did not raise the above-noted arguments (1), (2)(a), and (3) before the Bankruptcy Court, her contentions have been impliedly waived and should not be considered by this Court. In her response, Mayer disagrees, arguing that “the constructive trust argument was addressed quite extensively” before the Bankruptcy Court.

Moreover, she submits that, even if these arguments had not been raised below, they should be considered by this Court because a refusal to consider those arguments would not serve the purposes of the waiver rule. More broadly, Mayer characterizes the waiver argument as nothing more than an “attempt to divert attention away from the issue” because the “Creditors have so little confidence in the merits of their own constructive trust defense.” (Appellant's Br. at 1).

“Ordinarily an appellate court does not give consideration to issues not raised below.” Hormel v. Helvering, 312 U.S. 552, 556, 61 S.Ct. 719, 85 L.Ed. 1037 (1941). This rule serves three distinct policies. “The first is to ease appellate review by having the district court first consider the matter. The second is to ensure [ ] fairness to litigants by preventing surprise issues from appearing on appeal. And the third is to promote judicial economy and the finality of judgments.” Fairlane Car Wash, Inc. v. Knight Enters., Inc., 396 Fed.Appx. 281, 286 (6th Cir.2010) (unpublished) (citations and internal quotation marks omitted).

Mayer does not contend that she specifically raised the above-listed arguments before the Bankruptcy Court. Rather, she submits that, because the issue of the imposition of a constructive trust was argued extensively before—and was considered by—the Bankruptcy Court, all arguments related to the imposition of a constructive trust were raised before the Bankruptcy Court and thus were not waived. However, simply because an issue was raised below does not mean that all arguments related to that issue are preserved. For example, in Fairlane Car Wash, the district court, after holding that the defendant had violated the Petroleum Marketing Practices Act, 15 U.S.C. § 2801 et seq. (“PMPA”), granted the plaintiff's request for attorney fees under the statute. 396 Fed.Appx. at 287. The defendant appealed, claiming that the attorney fees should not have been awarded because the PMPA was inapplicable to the transactions at issue. The Sixth Circuit Court of Appeals, noting that the plaintiff had (1) alleged violations of the PMPA and (2) expressly requested attorney fees pursuant to that statute, determined that the defendant had waived the argument that the cited statute was inapplicable by failing to so argue below. Id. Similarly, the presentation of issues related to the imposition of a constructive trust—even if those issues were central to the proceedings below—does not mean that Mayer may now raise new, previously-unargued issues with respect to that doctrine. See Chao v. Hall Holding Co., Inc., 285 F.3d 415, 427 (6th Cir.2...