In re Marriage of Ballstaedt, 98-404.

• Decision Date: 16 February 2000
• Docket Number: No. 98-404.,98-404.
• Citation: 606 N.W.2d 345
• Parties: In re the MARRIAGE OF Sheila Estella BALLSTAEDT and David John Ballstaedt, Jr. Upon the Petition of Sheila Estella Ballstaedt, Appellee, And Concerning David John Ballstaedt, Jr., Appellant, and Deery Brothers Ford, Inc. and Bellwether Companies, Inc., Intervenor-Appellants.
• Court: Iowa Supreme Court

606 N.W.2d 345

In re the MARRIAGE OF Sheila Estella BALLSTAEDT and David John Ballstaedt, Jr.

Upon the Petition of

Sheila Estella Ballstaedt, Appellee,

And Concerning

David John Ballstaedt, Jr., Appellant,

and Deery Brothers Ford, Inc. and Bellwether Companies, Inc., Intervenor-Appellants.

No. 98-404.

Supreme Court of Iowa.

February 16, 2000.

Michael W. Fay of Fay Law Office, Cedar Rapids, for appellant David John Ballstaedt, Jr.

Richard A. Stefani and Thomas F. Ochs of Gray, Stefani & Mitvalsky, P.L.C., Cedar Rapids, for intervenor-appellant Deery Brothers Ford, Inc.

William F. Olinger of William F. Olinger Law Office, Cedar Rapids, for intervenor-appellant Bellwether Companies, Inc.

Pamela J. Lewis, Cedar Rapids, for appellee. Considered by LARSON, P.J., and LAVORATO, SNELL, TERNUS, and CADY, JJ.

LARSON, Justice.

This is a dissolution case with many wrinkles. It involves the sale of a business and competing claims to the sale proceeds by two intervenors and a child support recovery unit. The district court ordered that the proceeds be paid to the support recovery unit to be applied to past-due child support and alimony. The former husband and the two intervenors appealed. We reverse and remand.

David Ballstaedt and Sheila Ballstaedt were divorced in 1994. Sheila was awarded primary physical care of the parties' children, and the court ordered David to pay child support and alimony. David was awarded his business called Dave Ballstaedt Ford, Inc. (DBF) in Mount Vernon, Iowa. In 1994, while the dissolution action was pending, David and DBF contracted to sell the business and the real estate on which it was located to John G. Deery, Sr., or his assignee. Proceeds of this installment sale are at the heart of this appeal.

The ownership of the business was apparently mixed. According to some of the evidence, the real estate was owned by David Ballstaedt personally, and the business itself was owned by DBF. The sale agreement did not establish a separate value for the real estate and the remainder of the assets. In fact, the total purchase price was not even stated in the agreement. The price was to be determined based on inventories of new and used cars and parts and additional consideration based on the greater of gross sales or a set monthly amount spread over the five-year life of the contract.

Deery, the buyer, did not pay any of the monthly amounts during the early stages of the contract because it claimed an offset for payments owed to it by the seller. The offset claim arose because during the first four months Deery was operating the Mount Vernon dealership the Ford Motor Company did not recognize it as a Ford franchisee and paid dealer incentives and other adjustments for that period to DBF. David Ballstaedt retained those checks, which the court found totaled approximately $155,000 (an amount disputed by the parties). A bookkeeper for Deery testified that, as of the time of trial, the installments due by Deery totaled $194,952.

In November 1996 an order for mandatory income withholding was served on Deery, seeking funds to be applied to David's delinquent alimony and child support. See Iowa Code ch. 252D (1995).

On November 14, 1997, Deery filed a petition to intervene in the dissolution case, asking the court to determine (1) whether the alimony and child support withholding order applied to the proceeds under the purchase agreement, i.e., whether this was "income"; and (2) whether Deery was entitled to deduct any sums owed to it by David or the corporation. The court granted Deery's petition for intervention.

Bellwether Companies, Inc. (to which the sellers had assigned their rights under the contract) filed a petition to intervene on December 12, 1997. Bellwether asked the court to determine that (1) Bellwether was entitled to the money held by Deery, and (2) Deery's obligation under the purchase agreement was not subject to the income-withholding order. Both Sheila and the child support recovery unit opposed Bellwether's intervention. (The court ultimately allowed Bellwether to intervene, but Bellwether claims it was too late; the money it was seeking under its assignment was already disposed of by the court.)

I. The Issues.

Deery raises two issues: the court's denial of its claim of setoff and its ruling on the merits of the case without first ruling on Bellwether's petition for intervention. David Ballstaedt contends the court erred in ruling that Bellwether was not entitled to the proceeds of the sale, and he contends the withholding order was invalid because he was not served notice of it. (We summarily resolve the notice issue against him. He was not entitled to notice of an immediate withholding order. See Iowa Code § 252D.10.)¹ Bellwether raises a single issue: the court's denial of its petition for intervention until it was too late to effectively argue its case.

III. Disposition.

The parties attack the withholding order on three substantive bases: (1) the contract payments by Deery are not "income" under our support-withholding statute; (2) the payments due from Deery are owed in whole or in part to DBF, which, as a corporation, has no support obligation; and (3) any payments under the income-withholding order were subject to a setoff in favor of Deery.

Iowa Code chapter 252D (1995) allows the child support recovery unit to issue an income-withholding order to satisfy support obligations. Section 252D.9 provides:

Specified sums shall be deducted from the obligor's earnings, trust income, or other income sufficient to pay the support obligation and any judgment established or delinquency accrued under the support order.

In the court's order of January 6, 1998, it found that, as of December 31, 1997, Deery owed David $194,952.87 under the purchase agreement, and David owed Deery $154,668.27, for a difference of $40,284.60 owing from Deery to David. The court ordered this difference to be paid to the child support recovery unit. (The court therefore implicitly ruled, at least temporarily, that Deery's payment could be reduced by the amount Deery had coming from the seller. However, the overall question of offset was delayed for a later resolution, and the court eventually denied Deery a setoff.)

A. Are the sale proceeds "income"? Chapter 252D, as it existed as of the time of the hearing in this case, did not provide a definition of income. A dictionary defines it as

a gain or recurrent benefit that is usu. measured in money and for a given period of time, derives from capital, labor, or a combination of both, includes gains from transactions in capital assets, but excludes unrealized advances in value. . . .

Webster's Third New International Dictionary 1143 (unabr. ed.1986). We believe these contract payments fall within this broad definition of income. We note the legislature has, since this case arose, adopted a similarly broad definition of income. Iowa Code section 252D.16(1) (1999) now provides "income" means all of the following:

a. Any periodic form of payment due an individual, regardless of source, including but not limited to wages, salaries, commissions, bonuses, worker's compensation, disability payments, payments pursuant to a pension or retirement program, and interest.

b. A sole payment or lump sum as provided in section 252D.18C.

c. Irregular income as defined in section 252D.18B.

The district court was correct in ruling Deery's payments were income under the statute. That does not resolve the ultimate questions, however, which are (1) whether the income is David Ballstaedt's, his corporation's, or both; and (2) whether Deery is entitled to a setoff.

B. Piercing the corporate veil. The purchase agreement is not clear as to who owned the assets being sold. The agreement states it is "by and between Dave

Ballstaedt Ford, Inc. and David J. Ballstaedt, Jr., Seller, and John G. Deery, Sr. or assignee, Buyers." The document is signed:

s/ David Ballstaedt, Pres Dave Ballstaedt Ford, Inc. and David Ballstaedt Jr. SELLERS

David testified that he personally owned the real estate, and the corporation owned the balance of the business assets. The wording of the contract itself supports his claim of a dual ownership. The district court, however, ruled that the corporation's involvement was irrelevant because David was the sole owner of the corporation. It stated:

1. For the purpose of the Order for income withholding, there is no distinction between money owed to the Respondent personally and money owed to Respondent's corporation. Respondent and Respondent's corporation are one and the same and he has commingled and [spent] those funds as if they were.

2. Respondent is entitled to receive income under the terms of the purchase agreement, whether that is personally or as sole shareholder and owner of the corporation need not be decided. Additionally, the Court understands the corporation is substantially indebted to the Respondent and therefore any income coming to the corporation would flow to the Respondent.

3. The issue of whether the Respondent's assignment to Bellwether Companies, Inc., is valid [is] an issue which will be tried at the time Bellwether's Petition for Intervention is tried, and that determination is not necessary for the purpose of dealing with Deery's Petition for Intervention.

(Emphasis added.) The gist of the ruling is any sale proceeds received by the corporation were in reality received by David.

We cannot agree that, as a matter of law, David Ballstaedt and the corporation are one and the same, as the court concluded. See Midwest Management Corp. v. Stephens, 291 N.W.2d 896, 902 (Iowa 1980)

(corporations are entities separate from their shareholders). A court may disregard a corporate structure by piercing the corporate veil only under circumstances "where the corporation is a mere shell, serving no legitimate business purpose, and used primarily as an intermediary to perpetuate fraud or promote injustice." C. Mac Chambers Co....