IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
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No. 95-30641
Summary Calendar
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In The Matter Of: L. ALAN EGLESTON,
Debtor.
VICKI EGLESTON,
Appellant,
versus
L. ALAN EGLESTON,
Appellee.
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Appeal from the United States District Court for the
Western District of Louisiana
(95-CV-411)
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February 5, 1996
Before JOLLY, JONES, and STEWART, Circuit Judges.
PER CURIAM:*
Vicki Egleston appeals from the district court's affirmance of
the bankruptcy court's determination that all but one of the
obligations stemming from a divorce decree were not in the nature
of alimony, maintenance, or support and therefore dischargeable in
the bankruptcy of her ex-husband, Dr. Alan Egleston. Concluding
that the bankruptcy court's factual finding as to one obligation
*
Pursuant to Local Rule 47.5, the court has determined that
this opinion should not be published and is not precedent except
under the limited circumstances set forth in Local Rule 47.5.4.
from the divorce decree, and the district court's affirmance of
that finding, were clearly erroneous, we affirm in part, reverse in
part, and remand for entry of judgment. We have jurisdiction
pursuant to 28 U.S.C. § 158(d).
I
Dr. Egleston filed a divorce action against Vicki Egleston in
1992 in the Court of Common Pleas of Westmoreland County,
Pennsylvania. On September 14, 1993, the court entered an order to
which both Dr. Egleston and Vicki Egleston consented (the
"Pennsylvania Order"). The Pennsylvania Order contains twenty-six
numbered paragraphs addressing myriad issues, including equitable
distribution of property and payment of alimony. Paragraph Nine of
the Pennsylvania Order is the only section that specifically
mentions alimony. It requires Dr. Egleston to pay to Vicki
Egleston $4,000 per month from October 1, 1993 to December 31,
1993. The payments resume on May 1, 1994, and continue for 128
months, for a total of 131 months. Paragraph Eight concerns Dr.
Egleston's agreement to sell his medical practice in Pennsylvania
to another medical group. It provides that $37,500 from the sale
shall be paid to Vicki Egleston at the signing of the agreement "as
equitable distribution." It also provides that the buyers shall
pay to Vicki Egleston a portion of the remaining sale price in six
consecutive monthly payments of $5,000 "as equitable distribution,"
commencing January 1, 1994. This paragraph obligates Dr. Egleston
to make such payments to Vicki Egleston in the event of a default.
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Vicki Egleston has not received any of the payments mentioned in
Paragraph Eight.
After moving to Louisiana, Dr. Egleston filed a Chapter 7
bankruptcy petition in March 1994. Vicki Egleston was listed as a
creditor based on the Pennsylvania Order. She filed an adversary
proceeding in bankruptcy court in June 1994, claiming that the
Pennsylvania Order should be excepted from discharge pursuant to 11
U.S.C. § 523(a)(5) as alimony, maintenance, or support. After
conducting a hearing in December 1994, at which both Eglestons
testified, the bankruptcy court entered a judgment declaring that
the 131 payments required by Paragraph Nine were alimony and were
therefore excepted from discharge. The court refused to except any
other part of the Pennsylvania Order from discharge, including the
six payments for $5,000 required by Paragraph 8. The district
court summarily affirmed the judgment of the bankruptcy court in
June 1995.
II
Whether an obligation to a former spouse is in the nature of
alimony, maintenance, or support is a factual question subject to
a clearly erroneous standard of review. In re Benich, 811 F.2d
943, 946 (5th Cir. 1987); Bankr.R. 8013. A finding of fact is
clearly erroneous "when although there is evidence to support it,
the reviewing court on the entire evidence is left with a firm and
definite conviction that a mistake has been committed." Anderson
v. City of Bessemer City, N.C., 470 U.S. 564, 573, 105 S.Ct. 1504,
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1511, 84 L.Ed.2d 518 (1985) (quoting United States v. United States
Gypsum Co., 333 U.S. 364, 395, 68 S.Ct. 525, 542, 92 L.Ed. 746
(1948)). "When a finding of fact is premised on an improper legal
standard, or a proper one improperly applied, that finding loses
the insulation of the clearly erroneous rule." In re Niland, 825
F.2d 801, 806 (5th Cir. 1987) (quoting In re Missionary Baptist
Foundation, 818 F.2d 1135, 1142 (5th Cir. 1987)).
Section 523 of the Bankruptcy Code sets forth the exceptions
to the general rule that all debts are dischargeable through
bankruptcy. Subsection (a)(5) exempts from discharge any debt owed
to a former spouse or child for alimony, maintenance, or support.
11 U.S.C. § 523(a)(5) (1994). "Whether a particular obligation
constitutes alimony, maintenance, or support within the meaning of
this section is a matter of federal bankruptcy law, not state law."
In re Joseph, 16 F.3d 86, 87 (5th Cir. 1994) (quoting In re Biggs,
907 F.2d 503, 504 (5th Cir. 1990)). "Bankruptcy court must
therefore look beyond the labels which state courts--and even the
parties themselves--give obligations which debtors seek to have
discharged." In re Dennis, 25 F.3d 274, 277-78 (5th Cir. 1994)
(citations omitted), cert. denied, ___ U.S. ___, 115 S.Ct. 732, 130
L.Ed.2d 636 (1995).
This court has set out a non-exclusive list of factors for
bankruptcy courts to use in making the determination. "These
considerations include the parties' disparity in earning capacity,
their relative business opportunities, their physical condition,
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their educational background, their probable future financial
needs, and the benefits each party would have received had the
marriage continued." Id. at 279 (citing In re Joseph, 16 F.3d at
88).
III
At the outset of our analysis, we note that the focus of our
review is the failure to except from discharge the six monthly
payments required by Paragraph 8.1 We emphasize the fact that but
for a one-month overlap and a $1,000 difference in amount, these
payments coincide with the five-month hiatus in alimony payments
provided by Paragraph Nine.
The bankruptcy court was not explicit in its analysis of the
nature of the payments required by the Pennsylvania Order. A
review of the hearing transcript suggests that the non-exclusive
list of factors recommended by this court guided to some extent the
bankruptcy court's determination that the payments labeled alimony
were in fact alimony.
As to the six payments required by Paragraph Eight, the
court's analysis is somewhat less clear. Initially, the court
appears to have recognized the similarities between the payments
required by the two paragraphs.
THE COURT: And the four thousand dollars a month
from you is, or has been referred to as alimony?
1
Although Vicki Egleston contests the findings of the
bankruptcy court as to other portions of the Pennsylvania Order, we
are convinced that they are not clearly erroneous.
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[DR. EGLESTON]: Correct. But the five thousand
dollars that they would be paying her would be part of
the property settlement of the sale of the practice.
THE COURT: Common sense would not so indicate.
THE WITNESS: Well, how else are you going to get to
seventy-five thousand dollars if you've got thirty-seven
five in the beginning and six months at five thousand
that brings you up close to where you should be for the
sale of the practice.
THE COURT: Well that would indicate that there was
no necessity of Ms. Egleston for any support at all,
otherwise she would have gotten four thousand dollars per
month from you plus the five thousand dollars per month,
if it was property in nature that you were dividing up.
In the end, however, it appears that the labels used in the
Pennsylvania Order swayed the bankruptcy court's determination that
the six payments required by Paragraph Eight were not alimony.2
The court explained the hiatus in alimony payments provided by
Paragraph Nine in the following manner:
[I]t is my understanding of that agreement, from the
testimony that I have heard, that it was the desire of
the state court judge to condemn him to pay one hundred
and thirty-one consecutive months. But because of the
moving expenses that he was anticipating having to make
and expend, she allowed a suspension in the event that
the payments were made by the other parties on the sale
of the business.
2
At the end of the hearing, the court declared:
The other portions of this appear to be property in
nature. That's the only paragraph, paragraph nine, that
appears to be alimony in nature. Everything else appears
to be property in nature in that everything else has
language in it such as where we're talking about the sale
of the practice. . . . And the balance of the cash
proceeds in the amount of thirty thousand dollars shall
be paid to the defendant as equitable distribution. This
document seems to imply as if there has been some sort of
equitable distribution of properties between the parties
already and this is another equitable distribution under
the agreement.
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We are unconvinced by the reasoning of the bankruptcy court.
"The Bankruptcy Code requires the bankruptcy court . . . to
determine the true nature of the debt, regardless of the
characterization placed on it by the parties' agreement at the
state court proceeding." In re Benich, 811 F.2d at 945. The non-
exclusive list of factors suggested by the Fifth Circuit guides
this determination. In re Dennis, 25 F.3d at 279 (citing In re
Joseph, 16 F.3d at 88). For the same reason that these factors led
the bankruptcy court to conclude that the three payments at the end
of 1993 and the 128 payments starting again in May 1994 were in
their nature alimony, a portion of the payments required by
Paragraph Eight coinciding with this hiatus must be alimony,
notwithstanding the label attached to these payments by the
Pennsylvania court. As the bankruptcy court suggested during the
hearing, to find otherwise would conflict with the finding that the
other payments were alimony. In these circumstances, the reason
for the hiatus in the payments actually labeled "alimony" appears
irrelevant.
We thus conclude that the bankruptcy court's finding as to the
payments required by Paragraph Eight, and the district court's
affirmance of that finding, were clearly erroneous. We hold that
five of the six monthly payments required by Paragraph Eight in the
amount of $4,000 each were in lieu of the alimony required by
Paragraph Nine, and thus in their nature alimony excepted from
discharge under § 523(a)(5). These five payments should be added
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to the 131 payments required by Paragraph Nine for a total of 136
payments. We hold that the remaining $1,000 from each of the five
payments and the $5,000 from the sixth payment do not constitute
alimony and thus are not excepted from discharge under § 523(a)(5).
III
For the reasons we have expressed above, we AFFIRM in part,
REVERSE in part, and REMAND for entry of judgment in accordance
with this opinion.
AFFIRMED in part, REVERSED in part and
REMANDED for entry of judgment.
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