Insights

Yet another recent bankruptcy court decision – this one out of the Central District of California – has taken on the controversial “Defense of Marriage Act,” signed in 1996 by President Bill Clinton, which limits the operation of the Full Faith and Credit Clause of the U.S. Constitution and strips away innumerable federal claims from same-sex couples.

In In re Balas, the U.S. Bankruptcy Court for the Central District of California – in a decision signed by 20 judges on the court – allowed Gene Balas and Carolos Morales, who legally married in California in 2008, to file a joint Chapter 13 bankruptcy petition. Despite the legal California marriage, the U.S. Bankruptcy Trustee moved to dismiss, noting that the debtors were ineligible to file a joint petition because they are two males. The U.S. House of Representatives Bipartisan Legal Advisory Group, which had previously voted to intervene in other litigation relating to the Defense of Marriage Act, asked the court for a brief continuance to determine whether it would intervene in this proceeding. Apparently, the Group decided not to intervene, a “non-response” the court viewed as “noteworthy.”

In considering the trustee’s motion to dismiss, the court noted that the court may dismiss a bankruptcy petition for cause. Although the U.S. Bankruptcy Code enumerates 11 “causes” that allow dismissal, the filing of a joint petition by a same-sex married couple is not one of the causes that can lead to dismissal. However, DOMA further provides that “[i]n determining the meaning of any Act of Congress, or of any ruling, regulation, or interpretation of the various administrative bureaus and agencies of the United States, the word ‘marriage’ means only a legal union between one man and one woman as husband and wife, and the word ‘spouse’ refers only to a person of the opposite sex who is a husband or a wife.” Thus, in all federal statutes, where one reads “spouse” or “marriage,” it only means “marriage by opposite sex persons.”

Citing to recent cases favoring same-sex couples (In re Somers, 2011 Bankr. LEXIS 1654 (Bank. S.D.N.Y. 2011 and In re Ziviello-Howell, 2011 U.S. Dist. LEXIS 57838 E.D. Ca. 2011), the court determined that no “cause” as defined in the Bankruptcy Code existed that would require dismissal of the petition. Rather, the trustee relied on DOMA to read into the Bankruptcy Code a definition of “spouse” that excludes same-sex spouses. The debtors asserted that DOMA violated the the equal protection clause of the U.S. Constitution, which requires government to treat people equally.

The court applied a “heightened scrutiny” standard to “sexual orientation” discrimination, based in part on the history of discrimination suffered by gays and lesbians and the fact that sexual orientation has little relation to legitimate policy objectives of government. Using this standard, the court concluded that DOMA cannot withstand constitutional scrutiny. The legislative record underlying DOMA is filled with stereotype-based thinking that the Equal Protection Clause intends to guard against, the court noted. Because the motion to dismiss by the trustee advances no valid, defensible governmental interest, the court declined to dismiss the lawsuit.

The court also concluded that DOMA discriminates based on sex, finding that DOMA is “gender-biased” because it is explicitly designed to deprive the debtors of the benefits of important federal law solely on the basis that the debtors are married to each other and said debtors are both men. Unlike the Somers litigation, the court in Balas specifically engaged in a constitutional analysis of DOMA, finding both that it should analyze laws that discriminated based on “sexual orientation” using a heightened scrutiny analysis and that DOMA cannot withstand such scrutiny.

As more and more jurisdictions allow same-sex couples to marry or otherwise solemnize their relationships through civil unions or domestic partnerships, creditors will need to monitor how these rights impact their ability to collect jointly or individually owed debts, not only in bankruptcy proceedings, but in debt collection matters as well.

Catherine M. Brennan is a partner in the Maryland office of Hudson Cook, LLP. Cathy can be reached at 410-865-5405 or by email at cbrennan@hudco.com.