Baertsch v. Baertsch
| Decision Date | 05 February 2018 |
| Docket Number | A17-0179 |
| Parties | In re the Marriage of: Sonja Vogen Baertsch, petitioner, Respondent, v. Andrew Baertsch, Appellant. |
| Court | Minnesota Court of Appeals |
This opinion will be unpublished and may not be cited except as provided by Minn. Stat. § 480A.08, subd. 3 (2016).
Reversed and remanded
St. Louis County District Court
Elizabeth A. Storaasli, Mark L. Knutson, Dryer Storaasli Knutson & Pommerville, Ltd., Duluth, Minnesota (for respondent)
Robin C. Merritt, Jacob J. Baker, Leah L. Fisher, Hanft Fride, P.A., Duluth, Minnesota (for appellant)
Considered and decided by Hooten, Presiding Judge; Smith, T., Judge; and Smith, J., Judge.*
UNPUBLISHED OPINION
Appellant contends that the district court erred in its grant of respondent's motion to apportion income tax liabilities by determining that the parties' stipulated marriagedissolution judgment and decree unambiguously divided their potential tax liabilities arising from an Internal Revenue Service (IRS) audit of the parties' 2009 to 2011 joint income tax returns. He also contends that the district court abused its discretion in awarding respondent conduct-based attorney fees for bringing the motion. Because we conclude that the language in the parties' stipulated marriage dissolution judgment and decree is ambiguous as to each parties' obligation for the tax liabilities arising from the IRS audit, and because it is not clear from the record what the amount and source of any tax deficiencies owed will be as a result of the parties' on-going dispute with the IRS, we reverse and remand.
Respondent Sonja Baertsch filed a petition for legal separation from her then-husband appellant Andrew Baertsch in August 2011. In March 2012 the parties received a letter informing them that the IRS would be auditing their joint income tax returns for 2009 and 2010. The audit was later expanded to cover 2011. While negotiating the terms of the dissolution judgment, respondent claims her attorneys "became concerned about potential tax liabilities related to business ventures [appellant] was engaging in and deductions he was claiming." As a result, she says, her attorneys included language in the parties' stipulated marriage dissolution judgment and decree (the Decree), as part of Conclusion of Law 12, that requires each party to indemnify and hold the other harmless from "tax audits and tax deficiencies" that are "on or associated with any item of property awarded to that party." Appellant claims that the IRS audit was not discussed during thenegotiation of their divorce, and that Conclusion of Law 12 does not apply to the audit of their personal income tax returns. The key paragraph in Conclusion 12 states:
Except as herein otherwise specifically set forth each party shall be solely obligated for any debts, liabilities or encumbrances on or associated with any item of property awarded to that party including tax audits and tax deficiencies pursuant to this paragraph and shall indemnify and hold the other party harmless therefrom. Each party has an affirmative obligation to the extent possible to remove the other from any such liabilities encumbering the property. Each party is obligated to disclose to the other party any and all debts, liens and encumbrances incurred prior to the date of this Judgment.
In September 2012, the district court entered the Decree, which dissolved the marriage and divided the marital estate based on the parties' stipulated agreement. The relevant portions of the property division for purposes of this appeal are Springhill Enterprises, Inc., awarded to appellant in Conclusion of Law 12, and real property in Montana (the Montana property), awarded to respondent in Conclusion of Law 19.
The parties received a detailed notice in April 2015 from the IRS of the claimed deficiencies in their joint income tax returns for 2009 to 2011. It is unclear from the record what the current status of the IRS audit is, but the parties are still contesting the results of the audit with the IRS.
Respondent sent appellant a letter demanding that he indemnify her in the tax audit for all properties other than the Montana property, based on Conclusion of Law 12 in the Decree. When appellant denied any obligation to indemnify respondent, she moved the district court for an order: (1) requiring appellant to indemnify, defend, and hold her harmless from all claims, deficiencies, and liabilities arising from assets awarded to him aspart of the Decree; (2) requiring appellant to remove her from any tax liability for any item of property other than the Montana property; (3) determining that she is only responsible "for any claims, deficiencies and liabilities including penalties and interest, in the current IRS Tax Audit of the parties for years 2009-2011, arising from the 'Montana' property," and that he "is responsible for all other claims, deficiencies and liabilities in the IRS Tax Audit of the parties for years 2009-2011, including penalties and interest in that audit and all remaining defense costs and attorneys' fees associated therewith"; and (4) for conduct-based attorney fees. The district court granted the motion in full, and after receiving respondent's application detailing the attorney fees incurred in bringing the motion, ordered appellant to pay her $24,310.69 in conduct-based attorney fees. This appeal followed.
Whether the language of a dissolution judgment is ambiguous is a question of law subject to de novo review. Tarlan v. Sorensen, 702 N.W.2d 915, 919 (Minn. App. 2005). "A writing is ambiguous if it is reasonably subject to more than one interpretation." Ertl v. Ertl, 871 N.W.2d 410, 415 (Minn. App. 2015) (citations omitted). Deciding whether an ambiguity exists "cannot be made by reading words in isolation." Landwehr v. Landwehr, 380 N.W.2d 136, 139 (Minn. App. 1985) (citing Metro Office Parks Co. v. Control Data Corp., 295 Minn. 348, 352, 205 N.W.2d 121, 124 (1973)). If the language used "is plain and unambiguous there is no room for construction." Starr v. Starr, 312 Minn. 561, 562-63, 251 N.W.2d 341, 342 (1977). If there is ambiguity in a stipulated provision in adissolution judgment, we apply rules of contract construction. Blonigen v. Blonigen, 621 N.W.2d 276, 281 (Minn. App. 2001), review denied (Minn. Mar. 13, 2001). Extrinsic evidence may be used to construe the language, and interpreting the provision "is a question of fact . . . unless such evidence is conclusive." Hickman v. SAFECO Ins. Co. of Am., 695 N.W.2d 365, 369 (Minn. 2005). We interpret contract language "to determine the intent of the parties." Ertl, 871 N.W.2d at 415 (quoting Caldas v. Affordable Granite & Stone, Inc., 820 N.W.2d 826, 832 (Minn. 2012)).
Appellant argues that the district court erred by determining that the Decree unambiguously requires that he indemnify respondent for tax liabilities due to the IRS audit of the parties' joint income tax returns. Appellant notes that there is no specific provision in the Decree that requires such indemnification and that the Decree, including the provisions relied upon by the district court, is ambiguous. We agree.
On first glance, the language "tax audits and tax deficiencies" from Conclusion of Law 12 appears to apply to and resolve this dispute. However, when the Decree is read as a whole, the "tax audits and tax deficiencies" language is subject to more than one reasonable interpretation and extrinsic evidence is needed to decide what the parties intended the language to mean. See Chergosky v. Crosstown Bell, Inc., 463 N.W.2d 522, 525 (Minn. 1990) (); see also Hickman, 695 N.W.2d at 369.
First, it is ambiguous whether Conclusion of Law 12 applies to "tax audits and tax deficiencies" that were already assessed as a debt, liability, or encumbrance at the time of the Decree, or if it applies to tax audits and deficiencies that are assessed after the Decree,or to both. At a minimum, the language does not state whether it applies to debts that have not yet been assessed. And the last sentence in the relevant paragraph, which requires each party to disclose "any and all debts, liens and encumbrances incurred prior to the date of [the Decree]," supports the interpretation that the paragraph applies only to liabilities that actually existed at the time of the Decree because the paragraph only requires informing the other party of debts or liabilities incurred prior to the Decree, and is silent on debts or liabilities assessed after the Decree. Moreover, the Decree states elsewhere that the parties' "unsecured debts are nominal," and "[t]hat the unsecured debts . . . incurred prior to the date of commencement of this action have been paid." But this potential debt is far from nominal—appellant reports that the IRS is claiming up to $1.9 million in tax deficiencies, interest, and penalties—and it has not been paid. While the parties may have intended for Conclusion of Law 12 to divide the liability for this tax audit, we cannot reach that conclusion from the language of the Decree alone.
Second, appellant's interpretation that Conclusion of Law 12 applies to "tax audits and tax deficiencies" that are assessed only on personal property divided by that Conclusion is a reasonable interpretation. The Conclusion is two single-spaced pages long, and the first page and a half divides up various items of personal property from cars to bank accounts to business interests. Only two paragraphs in the Conclusion address debts or liabilities, and only one mentions "tax audits and tax deficiencies." Without the tax audits and tax deficiencies language, the paragraph would read:
Except as herein otherwise specifically set forth each party shall be solely obligated for any debts, liabilities or encumbrances on or associated with any item of propertyawarded to that party . . ....
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