Hardey v. Metzger, Record No. 2628-07-4 (Va. App. 8/26/2008)

• Decision Date: 26 August 2008
• Docket Number: Record No. 2628-07-4.
• Citation: Hardey v. Metzger, Record No. 2628-07-4 (Va. App. 8/26/2008), Record No. 2628-07-4. (Va. App. Aug 26, 2008)
• Court: Virginia Court of Appeals
• Parties: MICHAEL K. HARDEY v. ELIZABETH METZGER.

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Unpublished Opinion

MICHAEL K. HARDEY v. ELIZABETH METZGER.

Record No. 2628-07-4.

Court of Appeals of Virginia, Alexandria.

August 26, 2008.

Appeal from the Circuit court of Loudoun County, Thomas A. Fortkort, Judge Designate.

Patricia E. Tichenor (Anne M. Heishman; Law Office of Patricia E. Tichenor, P.L.L.C.; Heishman Law, on briefs), for appellant.

Daniel J. Travostino (Daniel J. Travostino, P.C., on brief), for appellee.

Present: Judges Clements, Kelsey and Senior Judge Annunziata.

MEMORANDUM OPINION^*

JUDGE D. ARTHUR KELSEY.

Michael K. Hardey appeals a final divorce decree on several grounds. He claims the trial court erroneously enforced a property settlement agreement procured as a result of extortion and extrinsic fraud. Hardey also contends the court erred by not holding his wife, Elizabeth Metzger, in contempt of court for fraudulent non-disclosure of assets. Finally, Hardey argues the court mistakenly calculated and awarded attorney fees to Metzger. Raising an additional question presented, Metzger asserts that the court erred in calculating an award of prejudgment interest.

We hold the trial court did not err as Hardey contends and, thus, affirm the final decree as it concerns the property settlement agreement, the contempt of court request, and the award of attorney fees. We agree with Metzger, however, that the trial court erred in its calculation of prejudgment interest. We remand that aspect of the case for the trial court to correct that minor discrepancy in its ruling.

I.

Under settled principles, when reviewing a trial court's decision on appeal, "we view the evidence in the light most favorable to the prevailing party, granting it the benefit of any reasonable inferences." Smith v. Smith, 43 Va. App. 279, 282, 597 S.E.2d 250, 252 (2004) (quoting Congdon v. Congdon, 40 Va. App. 255, 258, 578 S.E.2d 833, 835 (2003) (citations omitted)). "That principle requires us to discard the evidence of the appellant which conflicts, either directly or inferentially, with the evidence presented by the appellee at trial." Petry v. Petry, 41 Va. App. 782, 786, 589 S.E.2d 458, 460 (2003) (citation omitted).

Hardey and Metzger married in 1977 and raised six children together. During the marriage, Hardey operated several businesses. In 1999, Hardey asked his wife to allow him to pledge property titled solely in her name as collateral for a $200,000 business loan. When Metzger refused, Hardey forged her name on a non-recourse guaranty loan and a deed of trust against the property titled solely in Metzger's name. Metzger first learned of the debt (as well as the forgery) about a year later when the lender sent her a foreclosure notice.

After separating, Metzger and Hardey each retained legal counsel to negotiate a property settlement agreement. Among other topics, the negotiations addressed the $200,000 debt. Metzger's counsel wrote an e-mail to Hardey's counsel demanding that Hardey pay the debt directly and obtain a release of the lender's lien against the property. If he failed to do so, Metzger's counsel noted, she would have no choice but to initiate civil proceedings to vacate the fraudulently obtained lien. In a separate e-mail sent by Metzger directly to Hardey, she advised her husband that she would "send [him] to jail" if he did not discharge the debt against her and obtain a release of the lien against her property. A few weeks later, counsel prepared and the parties signed a property settlement agreement in October 2000. The agreement divided the marital property, settled spousal and child support issues, and, with respect to the $200,000 debt required Hardey to "cause the lien to be released" and Metzger to be "absolved, indemnified and held harmless" from all liability within eighteen months. At the same time, Metzger and Hardey both signed loan documents reaffirming the debt and extending its due date. Metzger did this, she testified, to "give him time to go ahead and pay off" the debt in full.

After the parties signed the agreement, Metzger filed for divorce. Hardey waived service of process and notice of any further proceedings. As the agreement expressly contemplated, Metzger submitted it to the court for affirmance by, and incorporation into, the final divorce decree. In 2002, the trial court entered the final decree (signed by Hardey "Seen and Agreed") dividing the marital estate pursuant to the property settlement agreement. Because neither party appealed, the decree became final after the expiration of Rule 1:1's twenty-one-day period.

Hardey did not pay off the loan as he promised to do. Nor did he obtain a release of the securing lien against the property. Fearing she would lose the property to foreclosure, Metzger negotiated a $150,000 payoff with the lender and eventually paid the balance owed in September 2002. She did so by obtaining another loan at a 6% interest rate. From September 2002 to December 2003, Hardey made monthly payments on Metzger's new loan.

In 2003, Metzger filed a show-cause petition requesting higher spousal support pursuant to an escalation clause in the property settlement agreement triggered by Hardey's default on the indemnification clause. Hardey responded by declaring bankruptcy, thereby discharging the higher support obligation. The federal bankruptcy court, however, held that Hardey's indemnification liability could not be discharged and left "any determination of damages to appropriate state court proceedings."

In 2006, Metzger filed a show-cause petition seeking a contempt finding against Hardey for, among other things, failing to indemnify her from the original $200,000 debt. Hardey defended himself on various grounds, including the assertion that the property settlement agreement was "void" because of "financial and emotional duress" caused by Metzger's extortionary threats to expose him to criminal prosecution. See Hardey Answer & Cross Bill ¶¶ 1-2, 6, 15. Metzger also requested an award of attorney fees based upon a provision of the agreement imposing upon Hardey liability for "any and all legal fees incurred by Wife" in the event he defaulted on his contractual indemnification obligations.

In addition, Hardey filed a show-cause petition against Metzger claiming that she had fraudulently failed to disclose assets during the negotiations leading up to the property settlement agreement and thereby triggered a clause of the agreement providing for either contractual rescission or a partial monetary award in the event of a later finding of non-disclosure fraud.

Prior to the evidentiary hearing, the trial court dismissed Hardey's show-cause petition alleging non-disclosure fraud on the ground that no court order existed at the time the fraud allegedly occurred (more than a year prior to the final decree) and, thus, the remedy of contempt of court did not apply. The court added that the claim involved an allegation of intrinsic, not extrinsic, fraud. As a result, Hardey should have raised this claim prior to the divorce decree becoming final and unappealable. On the extortion issue, the court denied Metzger's pretrial motion to dismiss Hardey's show-cause petition. Hardey should have "the opportunity to develop the facts at trial," the court ruled.¹

At the start of the three-day trial, Hardey framed his extortion case with the allegation that Hardy felt "powerless to protect his interests" in response to his wife's alleged extortion and, "as a result of those threats," he entered in to a one-sided property settlement agreement. On several occasions throughout the trial, Hardey's counsel repeated this assertion.² As his counsel predicted, Hardey testified that his wife's threats (claiming oral threats in addition to the e-mail) induced him to sign the lopsided agreement that unjustly enriched his wife.

Metzger pursued at trial her claim for compensation for Hardey's default on the indemnification provision of the agreement. Metzger sought $112,617 for the loan payoff plus 6% prejudgment interest, a calculation which she alleged took into account Hardey's monthly payments from September 2002 until December 2003. Hardey raised various defenses in addition to his extortion claim. Among other things, he argued Metzger voluntarily took on the obligation to renegotiate the original defaulted loan and gave him an inadequate opportunity to resolve the problem.

Even though the court had previously dismissed Hardey's contempt petition, the parties offered testimony and exhibits on the nondisclosure issue. Denying any desire to litigate "the nondisclosure case," J.A. 1016, Hardey's counsel opened the door to this evidence by asserting it was relevant to determining the assets Metzger retained as a result of the property settlement agreement. Id. at 645, 647-48. Metzger's counsel argued the evidence was relevant to Hardey's credibility as a witness and also to her claim for attorney fees.

On the second day of trial, Hardey's counsel specifically objected to any of the evidence being used to "litigate the non-disclosure issue." Id. at 838. The court overruled the objection without comment. Hardey's counsel later raised the same objection. Metzger's counsel responded that Hardey's counsel had opened the door by bringing the matter up during direct examination of Hardey. The court agreed, "That's correct. You may examine." Id. at 856. Hardey later presented expert testimony addressing the value of the disclosed and allegedly non-disclosed assets. In closing arguments, Metzger's counsel made a proffer of proof on the subject in support of his client's position that "there are no hidden assets or bank assets or other sources of income that she hasn't disclosed or that haven't shown up on her tax returns." Id. at 2432-33. Hardey's counsel initially objected to the proffer, but withdrew the objection and made a counter proffer on the same point. Id. at 2433, 2458-59.

At trial, Metzger sought an award of attorney fees. The court admitted...