1. Appeal and Error--violations of appellate rules--sanctions
An appellant's counsel was directed as a sanction to pay a
sum equal to the cost of the appeal where the index of the
contents of the record on appeal did not include the entire list
of contents of the record, the pages in the record were not
numbered consecutively, various documents granting extensions of
time were not in chronological order, and the argument in the
brief did not contain the pertinent assignment of error number
nor the record page number where the assignment of error could be
found.
2. Divorce--equitable distribution--discharge in bankruptcy
An equitable distribution claim was properly discharged in a
bankruptcy proceeding and defendant was not entitled to excess
funds generated by a foreclosure sale of the marital property.
The Bankruptcy Court would have had the opportunity to protect
defendant's property interest in the bankruptcy proceeding if
defendant had filed a complaint objecting to the discharge of her
equitable distribution claim, requested relief from the stay to
proceed with the state court action for equitable distribution,
or requested that the Bankruptcy Court abstain from exercising
jurisdiction pursuant to 28 U.S.C. § 1334(c)(1).
3. Appeal and Error--preservation of issues--equitable
distribution--bankruptcy discharge--pension issue not raised
An issue in an equitable distribution action regarding
whether a bankruptcy proceeding discharged defendant's interest
in her husband's military pension was not addressed where the
order before the court specifically dealt with excess funds from
a foreclosure sale of the marital residence. The trial court was
never presented with the issue of whether defendant's rights in
the pension were discharged. Appeal by defendant from order entered 5 February 1997 by
Judge Dexter Brooks in Onslow County Superior Court. Heard in
the Court of Appeals 22 October 1998.
Carol Hearndon (defendant) appeals from an order denying her
claim to certain excess proceeds of a foreclosure sale. This
order arose out of the following facts:
Defendant and Eddy Hearndon (plaintiff) were married 22
November 1974 and five children were born of the marriage. The
parties separated 15 November 1994. Defendant filed for divorce
from bed and board, custody, child support, and other relief on
15 November 1994. The defendant was granted the divorce from bed
and board on 3 February 1995.
Defendant filed for absolute divorce on 20 November 1995.
The absolute divorce was granted on 19 January 1996 with the
issues of child custody, child support and equitable distribution
reserved for a hearing at a later date.
Plaintiff filed for bankruptcy protection under Chapter 7 of
the Bankruptcy Code on 13 March 1995 in the United States
Bankruptcy Court in the Eastern District of North Carolina.
Defendant received specific notice that plaintiff filed for
bankruptcy and in response, on 27 April 1995, defendant filed a
Proof of Claim. Defendant indicated that an equitable
distribution claim was pending and the amount of the claimincluded a one-half interest in real property and a retirement
account with the total amount to be determined. The real
property in question was the marital home during the marriage but
was not owned as tenancy by the entirety. Plaintiff was the sole
record owner of the property.
On 16 May 1995, the Trustee in bankruptcy filed a motion to
sell the real property free and clear of any liens. Defendant
responded to the motion on 24 May 1995 and requested the court
allow her to have possession of the property, purchase
plaintiff's interest in the property, or grant other or further
relief. On 30 June 1995, the Bankruptcy Court entered an order
lifting the automatic stay and the co-debtor stay and allowed a
foreclosure sale of the property. Any excess funds from the
foreclosure sale were ordered to be forwarded to the Trustee to
be held pending further orders from the Bankruptcy Court.
On 12 July 1995, the Bankruptcy Court released plaintiff
from all dischargeable debts. The “Discharge of Debtor” document
indicated that no complaint objecting to the discharge of
plaintiff was filed within the time fixed by the Bankruptcy
Court.
The proceeds from the foreclosure sale exceeded the costs of
administration and secured interest in the residence and as a
result $9,364.70 was collected from the foreclosure sale. Theseproceeds were forwarded to the Trustee. Since plaintiff had been
discharged from bankruptcy, the Trustee sent the excess funds
back to the Substitute Trustee on the foreclosed Deed of Trust.
The excess funds were then turned over to the Onslow County Clerk
of Superior Court.
The Clerk of Superior Court heard the issue of distribution
of the excess funds. The Clerk scheduled the matter to be heard
in the Superior Court. The Superior Court concluded that defendant's claim for equitable distribution was within the
jurisdiction of the Bankruptcy Court and because defendant failed
to make a proper request to the Bankruptcy Court for removal of
the equitable distribution claim to state court, defendant had
waived her right to do so. The Superior Court denied defendant's
claim for excess funds of the foreclosure sale and ordered the
excess funds turned over to plaintiff. Defendant appeals.
Lanier & Fountain, by Keith E. Fountain and Timothy R.
Oswalt, for defendant-appellant.
No brief filed for plaintiff-appellee.
EAGLES, Chief Judge.
[1]Initially we note defendant violated Rules 9(a)(1),
9(b)(4), and 28(b)(5) of the North Carolina Rules of Appellate
Procedure. See N.C.R. App. P. 9(a)(1) (1998), N.C.R. App. P.
9(b)(4) (1998), N.C.R. App. P. 28(b)(5) (1998). The index of the
contents of the record on appeal does not include the entire list
of contents of the record. The pages in the record were not
numbered consecutively and various documents granting extensions
of time were not in chronological order, making the record
difficult to follow. Finally, the argument in appellant's brief
does not contain the pertinent assignment of error number, nor
does it contain the record page number where the assignment of
error can be found. Despite these procedural errors, this Court
has decided to review the merits of this appeal; however, under
Rule 25 and Rule 34 we direct, as a sanction for violation of the
rules, that defendant-appellant's counsel pay as a penalty a sum equal to, but in addition to, the costs on appeal.
[2]The sole issue on appeal is whether defendant's claim
for equitable distribution of marital property was properly
discharged in the plaintiff's bankruptcy proceeding. Defendant
contends that the trial court committed reversible error in
concluding as a matter of law that the defendant's equitable
distribution claim was discharged. After careful review, we
disagree.
Equitable distribution is a statutory right granted to
spouses under G.S. 50-20 which vests at the time of separation.
G.S. 50-20(b). This vested right does not create a property right
in marital property. Perlow v. Perlow, 128 B.R. 412, 415
(E.D.N.C. 1991). Nor does the separation create a lien on
specific marital property in favor of the spouse. Id. It only
creates “a right to an equitable distribution of that property,
whatever a court should determine that property is.” Id. (quoting
Wilson v. Wilson, 73 N.C. App. 96, 99, 325 S.E.2d 668, 670, cert.
denied, 314 N.C. 121, 332 S.E.2d 490 (1985)). A “claim” is
defined, under the bankruptcy section of the United States Code,
as a “right to payment, whether or not such right is reduced to
judgment, liquidated, unliquidated, fixed, contingent, matured,
unmatured, disputed, undisputed, legal, equitable, secured, or
unsecured.” 11 U.S.C. § 101(5)(A) (1996). Accordingly, an
equitable distribution action can be a “claim” under the
bankruptcy code. Perlow, 128 B.R. at 415.
In Perlow v. Perlow, the parties were granted an absolute
divorce and equitable distribution was reserved for a later date. Id. at 413. On 18 October 1988 while the equitable distribution
action was still pending, Mr. Perlow filed a petition for
bankruptcy. Id. at 413. Mr. Perlow listed Ms. Perlow as an
unsecured creditor on a claim listed as “Case 88 CVD 813;
Contingent Disputed, Unliquidated; Division of Marital Property.”
Id. at 413-14. Ms. Perlow received two different written notices
that her equitable distribution claim was listed as a debt in Mr.
Perlow's bankruptcy case. Id. at 414. On 25 October 1988, Mr.
Perlow filed a document entitled “Notice of Plaintiff's
Bankruptcy” and mailed a copy of it to Ms. Perlow's attorney.
Id. This notice specifically stated that “[a]ll matters of
equitable distribution will be requested to be completed by the
Bankruptcy Court.” Id. Ms. Perlow also received a document
entitled “Order and Notice of Chapter 7 Bankruptcy.” Id. This
notice stated that “[i]f a creditor believes that debtor should
not receive a discharge under 11 U.S.C. § 727 or a specific debt
should not be discharged under 11 U.S.C. § 523(c) for some valid
reason specified in the bankruptcy law, the creditor must take
action to challenge the discharge.” Id. The notice provided that
the deadline to file a complaint objecting to the discharge of a
debt was 17 January 1989. Id. Ms. Perlow never filed an
objection. Id.
On 21 September 1989, Ms. Perlow filed a motion with the
district court requesting that the court distribute the marital
property and debts. Id. On 23 January 1990, Mr. Perlow sought
an adversary proceeding in Bankruptcy Court to determine whether
Ms. Perlow's interest in the equitable distribution claim was discharged in the bankruptcy proceeding. Id.
The Bankruptcy Court determined that Ms. Perlow's rights
were those of an unsecured creditor and the claim for equitable
distribution was discharged. Id. at 414-15. The district court
upheld the Bankruptcy Court's decision that Ms. Perlow's claim
for equitable distribution was appropriately discharged. Id. See
also Justice v. Justice, 123 N.C. App. 733, 740, 475 S.E.2d 225,
230 (1996), aff'd, 346 N.C. 176, 484 S.E.2d 551 (1997)(holding
that because plaintiff received adequate notice that his marital
interests were at issue but did not object to the discharge of
marital debts or request relief from the stay to pursue an action
for equitable distribution, his equitable distribution claim was
properly discharged in the bankruptcy proceeding).
The same reasoning applies here with regard to the excess
funds from the foreclosure sale of the real property. Here, as
in Perlow v. Perlow, plaintiff filed a petition for bankruptcy
following the grant of a divorce from bed and board but prior to
the hearing in state court on the parties' equitable distribution
claim. The petition for bankruptcy filed 13 March 1995 stated
that the deadline for filing a complaint objecting to the
discharge of the debtor or determining the dischargeability of
certain types of plaintiff's debt was 20 June 1995. Following the
petition in bankruptcy, defendant filed a Proof of Claim listing
the defendant's pending equitable distribution claim which
included real property and a retirement account. On 16 May 1995
the Trustee filed a motion to lift the automatic stay and on 24
May 1995, the defendant responded to the motion to lift the automatic stay and asked that the court acknowledge her one-half
interest in the property. However, nowhere in defendant's motion
did defendant mention or indicate that she was seeking to have
the dischargeability of her equitable distribution claim decided.
Neither did defendant ask the Bankruptcy Court to lift the
automatic stay to permit her to pursue her equitable distribution
claim in state court. Additionally, the defendant's response to
the Trustee's motion to sell the property free and clear of liens
cannot be construed as a valid complaint to determine
dischargeability under 11 U.S.C. § 523(c). See Kennerley v.
Kennerley, 995 F.2d 145, 146-47 (9th Cir. 1993).
On 30 June 1995, the Bankruptcy Court lifted the automatic
stay and co-debtor stay to allow the Trustee to sell the real
property at a foreclosure sale free and clear of any liens. On
12 July 1995, the Bankruptcy Court released plaintiff from all
“dischargeable debts.” Plaintiff never objected to the discharge
within the time period fixed by the Bankruptcy Court. Had
defendant filed a complaint objecting to the discharge of her
equitable distribution claim, requested relief from the stay
pursuant to 11 U.S.C. § 362(d) to proceed with the state court
action for equitable distribution, or requested that the
Bankruptcy Court abstain from exercising jurisdiction over the
matter pursuant to 28 U.S.C. § 1334(c)(1), the Bankruptcy Court
would have had the opportunity to protect defendant's property
interest in the bankruptcy proceeding. Accordingly, we hold that
defendant's equitable distribution claim was properly discharged
in the bankruptcy proceeding and defendant is not entitled to the excess funds generated by the foreclosure sale of the marital
property.
[3]Defendant also argues that the bankruptcy proceeding did
not discharge the interest in her husband's military pension.
However, we may not address the merits of this issue because it
is not properly before this Court.
The Order appealed from specifically deals with the excess
funds from the foreclosure sale, but does not determine
defendant's claim to a portion of plaintiff's military pension.
Rule 10(b)(1) of the Rules of Appellate Procedure states, “[i]n
order to preserve a question for appellate review, a party must
have presented to the trial court a timely request, objection or
motion, stating the specific grounds for the ruling the party
desired the court to make if the specific grounds were not
apparent from the context.” N.C.R. App. P. 10(b)(1) (1998).
Here the trial court was never presented with the issue of
whether the defendant's rights in the pension were discharged.
Accordingly, whether the rights in the pension fund were
discharged by the bankruptcy is not properly before this Court.
In conclusion, we hold that the trial court did not commit
reversible error in denying defendant's claim to the excess funds
from the foreclosure sale of the real property. We also require
that defendant's counsel pay as a penalty for violating the rules
of appellate procedure a sum equal to, but in addition to, the
costs on appeal.
Affirmed.
Judges JOHN and MCGEE concur.
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