Pearson v. Pearson

• Decision Date: 21 January 2011
• Docket Number: No. 2009-334-Appeal.,2009-334-Appeal.
• Citation: 11 A.3d 103
• Parties: Julie A. PEARSON a/k/a Julie A. Marion v. Gregory J. PEARSON.
• Court: Rhode Island Supreme Court

11 A.3d 103

Julie A. PEARSON a/k/a Julie A. Marion

v.Gregory J. PEARSON.

No. 2009-334-Appeal.

Supreme Court of Rhode Island.

Jan. 21, 2011.

Sean P. Keough, Esq., Pawtucket, for Plaintiff.

Kevin O. Hagan, Esq., Newport, for Defendant.

Present: SUTTELL, C.J., GOLDBERG, FLAHERTY, ROBINSON, and INDEGLIA, JJ.

OPINION

Justice INDEGLIA, for the Court.

Gregory J. Pearson (Pearson) appeals from a Family Court order requiring him to pay attorney's fees and costs to Julie A. Marion ¹ (Marion). Pearson contends that as the prevailing party on Marion's motion to adjudge him in contempt, the trial justice was not permitted to grant this award to Marion. This case came before theSupreme Court for oral argument on December 8, 2010, pursuant to an order directing the parties to appear and show cause why the issues raised in this appeal should not summarily be decided. Subsequent to our consideration of the parties' submitted memoranda and oral arguments, we are satisfied that cause has not been shown, and we proceed to decide the appeal at this time. For the reasons set forth in this opinion, we affirm the order of the Family Court.

IFacts and Procedural History

On May 18, 2005, Marion and Pearson entered into a "Property Settlement Agreement" (settlement agreement) to allocate their property holdings. The final judgment of divorce was entered on June 15, 2006, and established that the settlement agreement "shall be incorporated by reference * * * but not merged therein and it shall survive same as an independent contract between the parties."

Paragraph 7 of the settlement agreement provided the parties with instructions for satisfying a $100,000 outstanding line of credit with Bank of America. ² During their marriage, Marion and Pearson jointly obtained the line of credit in their names, individually, and in the name of their business, Maritime Solutions, Inc. The parties agreed that subsequent to their divorce, Pearson would be awarded the business in its entirety, and he would be responsible for the taxes, claims, and debts against the business, including the line of credit. However, the settlement agreement contained a caveat to Pearson's obligations, stating that "[Marion], and her father, Peter Marion, shall go to Bank of America and make every effort to transfer $50,000 of the outstanding balance on said Line of Credit to [Marion] in order to reduce the outstanding balance on the * * * Line of Credit by the $50,000 figure." Conveying a reciprocal requirement on Pearson, paragraph 7 continued that "[a]rrangements shall also be made to take [Marion's] name off [the line of credit] * * * and the remaining balance shall be the responsibility of [Pearson], and he shall pay said balance and hold [Marion] harmless on same." Paragraph 7 also specified, seemingly predictive of later events, that "[t]hese obligations shall not be discharged in bankruptcy as it is considered a marital obligation with respect to both parties as it pertains to [the line of credit]."

Further anticipating an inevitable bankruptcy, paragraph 27 of the settlement agreement expressly described the rights afforded to Marion or Pearson if either party sought state or federal protection from their personal debts:

"In the event either party files for the protection of the Federal Bankruptcy Act or any state receivership act or any other act for the benefit of debtors, and any of the joint creditors of the parties shall make demand upon the other party for the payment of obligations which would otherwise have been the responsibility of the other party, then in such event the non-bankrupt party shall be entitled to make whatever claims and seek whatever remedies permissible by law and permissible by the terms of this Agreement, including but not limited to, requiring the bankrupt party to pay such debts on behalf of the non-bankrupt party since the same were assumed by him or her. Either party may seekto have the bankrupt party meet and pay all costs, including reasonable attorney's fees incurred by the non-bankrupt party in pursuing his or her rights pursuant to remedies under this subparagraph." (Emphases added.)

True to the settlement agreement's portents, Pearson filed for Chapter 7 bankruptcy on September 13, 2005. Pearson included both the Bank of America line of credit claim worth $107,000 (at that time) and also Marion's "[h]old harmless obligation regarding Bank of America" as unsecured creditors in his filing. On February 24, 2006, Pearson was discharged from all personal debts. ³

Thereafter, Pearson and Marion repeatedly found themselves in Family Court bitterly disputing their obligations under the settlement agreement and seeking clarification of the effect of Pearson's bankruptcy on the outstanding line of credit. Specifically, a Family Court order entered on April 28, 2006, reaffirmed that Pearson was required "to make any and all effort to take [Marion's] name off of the line of credit." The order also held Pearson "solely responsible for the line of credit" and prohibited Pearson from "tak [ing] any steps to expose [Marion] to that debt." It concluded that Marion "is hereby protected from that debt, and * * * Pearson does hereby indemnify and hold harmless [Marion] for that debt, and if for some reason a bank or other financial institution should force [Marion] to pay that debt, and she is not indemnified by [Pearson] for said debt, he exposes himself to a Motion to Adjudge in Contempt."

Despite the Family Court's admonition to Pearson, Marion received a letter from Rockstone Capital, LLC (Rockstone) on February 7, 2007, notifying her that the $100,000 line of credit "remain[ed] unpaid and seriously delinquent." Rockstone further explained that they were preparing to initiate litigation against her. In response, Marion again petitioned the Family Court to intervene and requested that Pearson be adjudged in contempt for willfully violating the order of April 28, 2006. After a hearing, on August 17, 2007, the Family Court again held that "Pearson cannot take any steps to expose [Marion] to that Rockstone * * * debt and [Marion] is hereby protected from that debt and [Pearson] does hereby indemnify and hold harmless [Marion] for that debt, and if for some reason a bank or other financial institution should force [Marion] to pay that debt and she is not indemnified by [Pearson], he exposes himself to a Motion to Adjudge in Contempt." However, Pearson was not adjudged in contempt at that time.

On June 28, 2008, Rockstone followed through on its threat, filing a civil action against Marion in Kent County Superior Court and requesting $138,123.42 in damages, plus accrued interest, costs, expenses, late charges, and attorney's fees. Marion filed a third-party complaint against Pearson demanding indemnification if Rockstone does obtain a judgment against her. On or about September 8, 2008, Pearson answered the third-party complaint raising several affirmative defenses including his bankruptcy. Pearson also counterclaimed against Marion's third-party complaint asserting that because Marion also was a personal guarantor on the line of credit, he is entitled to contribution from her for any amount he is held liable.

On September 26, 2008, Marion again took action in the Family Court, requesting that Pearson be adjudged in contempt of the order of April 28, 2006 and theorder of August 17, 2007 because she was being sued by Rockstone for the entire line of credit debt. The matter came before the Family Court on June 5, 2009. Marion, Pearson, and Marion's father, Peter Oliver Marion, testified.

Both Marion and her father explained that after the settlement agreement was finalized they approached Bank of America about transferring $50,000 of the line of credit to her name, but Bank of America declined to divide the debt. Marion testified that she did not further pursue Bank of America on this request after the 2006 and 2007 orders because she understood the Family Court's holdings as requiring Pearson to indemnify her fully if or when she was held liable for the debt. Marion testified that she believed Pearson now was responsible for the full amount of the line of credit. Marion stipulated that Rockstone had not yet obtained a judgment against her for the line of credit.

Pearson testified that he understood that the Family Court's prior orders required that he indemnify Marion for any liability she incurs from that debt, even though he had bankruptcy protection. However, Pearson explained that he had declined to take any present action to pay down the line of credit debt because he planned to indemnify Marion if she was "forced" to pay following final adjudication on the Rockstone civil action. He also explained that he did not have the present ability to pay the debt or indemnify Marion.

In a bench decision, the Family Court justice found Marion's father's testimony credible with respect to "mak[ing] every effort" to transfer $50,000 of the debt into Marion's name.⁴ He acknowledged that had Marion been successful with the transfer, Pearson was supposed to make arrangements to remove her name from the line of credit. The Family Court justice also reaffirmed that "if for some reason a bank or other financial institution should force [Marion] to pay that debt and she is not indemnified by [Pearson] for said debt, he exposes himself to a motion to adjudge in contempt." He reiterated that Pearson must hold Marion harmless for the entire debt. However, after so finding, the Family Court declared that Marion's motion to adjudge Pearson in contempt was still premature "because she ha[d] not been forced to pay the debt" by Rockstone. Likewise, in the written order of July 3, 2009, memorializing this bench decision, the Family Court stated that Pearson was not in contempt because the Family Court's previous orders "call [ed] for indemnification and no [j]udgment has entered against [Marion] for the monies owed on the line of credit." Though noting that it seemed to be...