Order and Opinion Granting Defendant’s Motion to Dismiss Complaint. Prior to the Defendant-Debtor’s bankruptcy petition, the Plaintiff obtained a verdict and judgment finding the Defendant – the Plaintiff’s former mother-in-law – failed to provide financial support as required under an Immigration Services affidavit of support. The Complaint claimed that the judgment debt owed to the Plaintiff was nondischargeable as a domestic support obligation under 11 U.S.C. § 523(a)(5), a debt owed to a spouse, former spouse, or child under § 523(a)(15), or a willful and malicious injury under § 523(a)(6). The Defendant filed a motion to dismiss the entirety of the Plaintiff’s complaint, arguing that the debt was not owed to a spouse, former spouse or child of the Defendant and lacked well-pleaded factual allegations that could support a finding of willful and malicious injury.
     The Court granted the Defendant’s motion to dismiss the claims under § 523(a)(5) and (15), finding the Plaintiff’s claims failed to satisfy nearly identical limiting phrasing in both subsections that restrict the respective exceptions to discharge to certain specified recipients, namely a debtor’s spouse, former spouse, or child (the “Enumerated Payees”). While the Fourth Circuit Court of Appeals has clarified that the identity of the immediate payee is not determinative of whether the debt is dischargeable, In re Bishop, 149 F.3d 1167, 1167 (4th Cir. 1998), the debts must nevertheless be in the nature of support and intended to benefit an Enumerated Payee. The Court found that the Plaintiff was not the spouse, former spouse, or child of the Defendant and, as a former son-in-law, would not fit within even that more expansive view of Enumerated Payees because the benefits from the affidavit of support did not flow, directly or otherwise, to one of those payees. The Court rejected the Plaintiff’s attempt to rely on the joint and several nature of the original underlying debt as a means to impute the requisite status of “former spouse” to the Defendant. The Court observed that the Plaintiff dismissed his former wife from the complaint from the underlying proceeding that resulted in the judgment; moreover, any joint and several liability that derived from the affidavit of support had no bearing on the identity of the obligee of the debt for purposes of § 523(a)(5) or (15). Regardless of whether a debtor was jointly and severally liable with another party for a given debt, that liability does not alter the identity of the party to whom the debtor owes that debt. Because the Plaintiff – as the obligee of the debt – was not an Enumerated Payee under either subsection, the Court found the Plaintiff failed to sufficiently plead a cause of action for nondischargeability under § 523(a)(5) or (15).
     The Court also dismissed the Plaintiff’s claim under § 523(a)(6), which precludes a debtor from discharging “any debt … for willful and malicious injury by the debtor to another entity or to the property of another entity.” “[N]ondischargeability takes a deliberate or intentional injury, not merely a deliberate or intentional act that leads to injury.” Kawaauhau v. Geiger, 523 U.S. 57, 61 (1998). The debtor must act intentionally and engage in conduct with an “intent to injure,” and, without more, a simple breach of contract that leads to injury, even if that breach is deliberate, does not fall within the bounds of willful and malicious injury. TKC Aero. Inc. v. Muhs (In re Muhs), 923 F.3d 377, 386, 389 (4th Cir. 2019). Rather, a breach must be accompanied by some conduct that is legally wrongful or tortious.  See, e.g., In re Walker, 416 B.R. 449, 468 (Bankr. W.D.N.C. 2009). The Court found the factual allegations in the Complaint were insufficient to show beyond a speculative level that the Defendant’s breach of her obligations under the affidavit of support was accompanied by legally wrongful or tortious conduct within the meaning of § 523(a)(6). The Court further found that the Plaintiff’s bare assertions and legal conclusions of implied malice and intent to harm were unsupported by well-pleaded, relevant facts that could support a plausible claim to relief. Accordingly, the Court granted the Defendant’s motion to dismiss.
 

     Order Sustaining Trustee's Objection to Amended Exemptions. The Chapter 7 Trustee objected to the debtors’ claimed exemptions in their joint state and federal tax refunds. The debtors attempted to exempt the entirety of their interests in the 2023 joint refunds under a combination of N.C. Gen. Stat. § 1C-1601(a)(12), which allows North Carolina debtors to exempt “[a]limony, support, separate maintenance, and child support payments or funds[,]” and the “wildcard exemption” of N.C. Gen. Stat. § 1C-1601(a)(2), which allows debtors to retain their “aggregate interest in any property, not to exceed five thousand dollars ($5,000) in value of any unused exemption amount to which the debtor is entitled under [the homestead exemption]." The Trustee objected, arguing that earned income and child tax credits do not fit within the § 1C-1601(a)(12) definition of “support” and that the debtors incorrectly allocated the joint income tax refunds, leading to an inaccurate wildcard exemption for the female debtor.
     Despite the liberal presumption afforded to claimed exemptions in North Carolina, the Court found that earned income and additional child tax credits do not fall within the meaning of “support” payments under § 1C-1601(a)(12). The Court first considered a plain-meaning approach but found no statutory definitions and a wide range of ordinary meanings for the word “support.” Turning to the context and legislative history, the Court employed two canons of construction, noscitur a sociis and the canon against superfluity. On the first, the Court found that the positioning of the word “support” within a list of issues attendant to divorce, separations, or a parent’s legal obligations supported a conclusion that the “support” payments referenced in § 1C-1601(a)(12) are similarly connected to family-related legal duties or obligations and domestic agreements. This reading would exclude earned income and additional child tax credits, which have no such similar connection.  On the second canon, the Court determined that adopting an overly expansive reading of “support” would render superfluous the surrounding terms “alimony,” “separate maintenance,” and “child support payments.” The Court also considered the NCBA summary of the proposed amendment that became § 1C-1601(a)(12), which indicated that subdivision (12) was based on language from Oklahoma’s similar exemption, 31 Okla. Stat. § 1(19). The Court noted that Oklahoma Courts had by then already considered and rejected an expansive reading of the word “support” that would include tax credits. See Kirtley v. George, No. 97-CV-40-K(J), 1997 WL 33311019, at *6 (N.D. Okla. Aug. 7, 1997). Relying on those tools for statutory interpretation, the Court concluded that earned income and additional child tax credits are not exempt from the claims of creditors as “support” payments under § 1C-1601(a)(12).
     The Court next considered the appropriate method for fixing each debtor’s individual interest in the 2023 joint tax refunds, which would then determine the amount of the refund available to each debtor to claim under their respective “wildcard” exemption. Courts considering the question of allocating a joint tax refund have adopted four approaches: (1) the withholding rule that divides the joint refund in proportion to each spouse’s withholdings, (2) the income rule that divides the refund in proportion to each spouse’s income, (3) the 50/50 rule that divides the refund equally between the spouses, and (4) the separate filings rule, which uses IRS formulas and revenue rulings to allocate the refund based on each spouse’s hypothetical individual tax liability had the spouses filed their tax returns separately. Observing that there is no applicable North Carolina statute directly on point that defines spouses’ rights to joint tax refunds in this context and no binding precedent at the state or federal level, the Court looked to other relevant indicia to try to predict how the North Carolina Supreme Court would rule on the issue. The Court first rejected the 50/50 rule, noting that under North Carolina law, a presently married couple retains their own respective interests in joint tax refunds and equitable distribution laws are of no consequence prior to separation of the parties. In considering the other three approaches, the Court found the separate filings rule to be better reasoned and more consonant with North Carolina law regarding property interests. The Court observed that related state tax law and administrative law decisions showed the North Carolina Department of Revenue (“NCDOR”) parallels—and in some cases directly incorporates—IRS methodologies for apportioning joint tax refunds between individual taxpayers; this in turn persuaded the Court that North Carolina would follow the IRS allocation methods utilized in the separate filings rule. The Court was also mindful of the fundamental flaws within the income and withholding rules, including the failure to account for tax credits like the earned income and additional child tax credits. In sum, the Court found that the separate filings rule was the most appropriate method of allocating spouses’ interests in a joint tax refund.
 

     Order Granting Motions to Transfer Venue. The United States Bankruptcy Administrator, supported by several creditors and a state regulatory agency, moved under 28 U.S.C. § 1412 and Federal Rule of Bankruptcy Procedure 1014(a) to transfer two bankruptcy cases to the Eastern District of Kentucky, alleging that venue was improper in the Middle District of North Carolina because the debtors were not incorporated or licensed to do business in North Carolina, did not have their primary operations and physical assets in North Carolina, and consistently represented in corporate filings that their principal place of business was not within North Carolina.
     The Court first found that the movants had not met the required burden to show improper venue because the evidentiary record demonstrated that the principal place of business for the debtors was in the Middle District of North Carolina. The Supreme Court has explained that the “‘principal place of business’ is best read as referring to the place where a corporation’s officers direct, control, and coordinate the corporation’s activities” and is sometimes referred to as the “nerve center” of the company, i.e. “the actual center of direction, control, and coordination.” Hertz Corp. v. Friend, 559 U.S. 77, 92-93 (2010). Here, the evidentiary record showed the nerve center for both debtors was in Winston-Salem at the residence of the debtors’ president and CEO. Despite the debtors’ coal operations occurring primarily in Kentucky, the direction and control of those operations originated in the Middle District of North Carolina. Therefore, the Court found venue was proper as it was the location of the debtors’ principal place of business.
     Nevertheless, the Court granted the movants’ alternative request to transfer venue to the Eastern District of Kentucky “in the interest of justice or for the convenience of the parties.” 28 U.S.C. § 1412. In weighing whether to transfer venue for the convenience of the parties, the Court applied the six-criteria test developed by the Fifth Circuit Court of Appeals in In re Commonwealth Oil Ref. Co., 596 F.2d 1239, 1247 (5th Cir. 1979) (“CORCO”). Here, the Court found that most of the CORCO factors weighed firmly in favor of transfer: nearly all of the debtors’ tangible assets, including the coal wash plant, were located in Kentucky; the greater number of creditors in the cases were either based in Kentucky or argued in favor of venue in Kentucky; in the event of a sale of assets, the potential witnesses—brokers, appraisers, accountants, and auctioneers—would likely be hired from Kentucky; and state regulators, including mining inspectors and bond release specialists, could more fully participate and provide testimony in Kentucky. The Court also found that, because the Bankruptcy Administrator moved to transfer the cases within a week of the petition date, the “learning curve” factor did not weigh against transfer.
     The Court also found that transfer was appropriate “in the interest of justice,” based on several key factors. Judicial economy favored venue of the cases in the Eastern District of Kentucky as there were already pending civil cases against both debtors in that state and venuing the cases in Kentucky would allow the debtors to better coordinate with state and federal inspectors, abate existing environmental violations, and satisfy any regulatory obligations going forward. The Court also found that Kentucky had a greater interest than North Carolina in having the debtors’ cases determined within its borders, citing to the environmental and economic impacts of the debtors’ coal operations. The Court concluded that, despite the deference afforded the debtors’ choice of forum, the connections to their chosen venue in North Carolina did not outweigh the many factors favoring Kentucky. Accordingly, the Court granted the motions and ordered that the cases be transferred to the Eastern District of Kentucky.
 

     Order Overruling in Part and Sustaining in Part Objection to Expert Reports. Defendant objected to the admission and consideration of the Plaintiff’s expert reports, arguing that the opinions and proposed testimony failed to satisfy the reliability and relevancy requirements of Federal Rules of Evidence 401 and 702 and should be excluded from consideration on summary judgment.
     The Court conducted the reliability and helpfulness analysis mandated by Rule 702, specifically addressing the four main points of objection raised by the Defendant. First, the Court found that the expert’s opinion would be helpful to determining the applicable healthcare industry standard contained within the parties’ contract. Second, the Court found the Plaintiff’s expert had the qualifications and knowledge necessary to testify under Rule 702 and the Defendant’s assertion that her experience was insufficiently related to the specific circumstances of the proceeding went to the credibility of the expert’s testimony, not its admissibility. Third, the Court found that the majority of the report and proposed testimony was firmly within the realm of permissible ultimate-issue testimony, but determined it would strike and disregard any statements or opinions that ventured too close to impermissible legal conclusions. Fourth, the Court found that, although there were no authoritative, published industry standards that could be directly applied, the expert’s extensive knowledge and training in the healthcare field provided a sufficiently reliable basis under Rule 702 for forming opinions on the contract’s performance standard. The Court further found that the expert adequately based her opinions on depositions and other documentary evidence in the record; the Defendant’s challenges to any of the expert’s assumptions went to the credibility of her testimony and could be addressed through cross-examination at trial.
     The Court, therefore, overruled in part and sustained in part the Defendant’s objection, allowing the expert reports and proposed testimony while excluding those statements constituting legal conclusions as to the Defendant’s responsibilities under the contract or its alleged breaches.