Michael v. Miller, 2021-0361
| Court | United States State Supreme Court of Ohio |
| Writing for the Court | Stewart, J. |
| Citation | 2022 Ohio 4543 |
| Parties | Michael, Appellee v. Miller, Appellant, et al. |
| Docket Number | 2021-0361 |
| Decision Date | 19 December 2022 |
2022-Ohio-4543
Michael, Appellee
v.
Miller, Appellant, et al.
No. 2021-0361
Supreme Court of Ohio
December 19, 2022
Submitted March 8, 2022
Appeal from the Court of Appeals for Cuyahoga County, No. 109121, 2021-Ohio-307.
John V. Heutsche Co., L.P.A., and John V. Heutsche, for appellee Karen Miller.
Weston Hurd, L.L.P., and Scott J. Orille, for appellant.
Stewart, J.
{¶ 1} In this discretionary appeal, there is no question that a perfected lien on stock shares in an Ohio corporation exists to secure six years of spousal-support payments set to begin in 2034. But we are asked to determine whether an equitable lien on the stock also exists to secure a current support obligation lasting 20 years. Third-party defendant-appellant, Cody Miller, appeals from a judgment of the Eighth District Court of Appeals, which concluded that plaintiff-appellee, Karen Michael (formerly known as Karen Miller), holds an equitable lien on the stock securing defendant-appellee David Miller's current obligation to pay Karen monthly spousal-support payments (totaling $3.6 million) over 20 years, in addition to the lien Karen holds on the stock to secure David's obligation to pay quarterly support payments (totaling $450,000) beginning in 2034. 2020-Ohio-307, ¶ 45-51. We conclude that an equitable lien does not exist on the stock to secure the current obligation, and we reverse the Eighth District's judgment.
I. FACTS AND PROCEDURAL HISTORY
{¶ 2} Karen Michael and David Miller were married in 1993. Cody is David and Karen's son. Ronald Miller, David's father and Cody's grandfather, owned a business, Ram Sensors, Inc. In 2009, Ronald gifted to David and Cody, who was 15 years old at the time, each 50 percent of the shares of Ram Sensors stock. David subsequently became the president of the company. Ronald also gifted Cody funds that "were held in a Vanguard brokerage account."
{¶ 3} Karen filed for divorce against David in November 2013. Karen and David entered into a separation agreement that was incorporated into their final judgment entry of divorce in January 2015. The separation agreement provided
that David would pay Karen spousal support in the amount of $15,000 a month for 20 years, terminating in December 2034. The agreement also provided that upon completion of the monthly support payments, David would pay Karen additional spousal support in 24 quarterly payments of $18,750 for six years, totaling $450,000.
{¶ 4} David and Karen's separation agreement also stated that David would repay Cody all monies due to him that David had withdrawn from Cody's Vanguard accounts and from Ram Sensors distributions to which Cody was entitled for the years 2011 through 2014.
{¶ 5} Karen also agreed to relinquish all rights and interest that she may have had in Ram Sensors, and David agreed to secure his spousal-support obligations by executing a cognovit note and stock-pledge agreement. David further agreed that he would not "encumber, transfer, assign, pledge or otherwise alienate his interest" in Ram Sensors without Karen's prior written consent.
{¶ 6} Soon after the divorce decree was finalized, David executed a cognovit note in the amount of $450,000 to be paid to Karen. David and Karen also entered into a stock-pledge agreement in which David pledged all of his Ram Sensors stock to Karen in consideration of and as security for the cognovit note.
{¶ 7} In November 2015, Cody and Ram Sensors filed suit against David in the Cuyahoga County Common Pleas Court "to both recover the funds stolen from [Cody] and to protect Ram Sensors." Cody alleged that David had breached his fiduciary duties and had misappropriated funds belonging to Cody and Ram Sensors. According to Cody, Karen told him that David had "stole[n] funds from [Cody's] Vanguard brokerage account [and] distributions to [Cody] from Ram Sensors, and that [David] was mismanaging and attempting to destroy Ram Sensors so that he would not have assets to pay [Karen]." Karen also gave Cody "many years worth of Ram Sensors bank statements, financial statements, and tax returns," which "provided the factual basis for [Cody's] claims" against David.
{¶ 8} In September 2016, Karen recorded a Uniform Commercial Code ("UCC") financing statement with the Ohio Secretary of State. The UCC financing statement describes the security interest as follows:
Pursuant to the terms of a certain agreement between [David] and [Karen] entitled "Pledge Agreement," dated January 22, 2015, the security interest described herein is a first position lien on all of [David's] right, title and interest in and to [David's] equity interest in Ram Sensors Inc., an Ohio Subchapter S corporation, including all classes of stock whether certificated or uncertificated
{¶ 9} Cody and David entered into a settlement agreement, which the trial court approved, entering an agreed order in April 2017 against David for $2,874,437.56 with interest. According to the agreed order, David was required to transfer all his stock in the company to Cody except as noted in the settlement agreement:
David Miller is the true and lawful owner of the David Miller Stock [defined in the settlement agreement as David's 50% of Ram Sensors stock], he has not sold, transferred, assigned, conveyed, mortgaged, pledged or otherwise hypothecated or encumbered the David Miller Stock except pursuant to the certain stock pledge agreement provided in favor of Ms. Karen Michaels as evidence in Disclosure Schedule 3.1 hereto.
(Boldface and italics sic.) The Disclosure Schedule 3.1 attached to the settlement agreement was the cognovit note for $450,000 and the stock-pledge agreement securing the cognovit note. According to Cody, he knew that Karen had a lien on
David's Ram Sensors stock to secure the $450,000 obligation, which would become "due to her on December 31, 2034." That is why he "agreed to take [David's] 50% of Ram stock subject to [his] mother's lien."
{¶ 10} Three weeks after the general-division litigation between Cody and David had concluded, Karen filed a postdecree pleading in her and David's divorce case in the domestic-relations division of the court of common pleas: a motion seeking transfer to Karen of David's 50 percent share of Ram Sensors stock pledged to her in the divorce and a request for a judgment declaring that David had assigned to her his rights to the stock and that David's transfer of the stock to Cody was "an illegal transfer." Nine months later, after requesting three continuances in the matter, Karen withdrew the postdecree pleading.
{¶ 11} Less than one month after Karen withdrew her postdecree pleading in the domestic-relations court and nearly one year after Cody and David settled their case in the general division, Karen attempted to intervene in the general-division case between Cody and David. She also filed a motion requesting that the court vacate the agreed judgment between Cody and David. The court denied her motions, and Karen appealed to the Eighth District. Miller v. Miller, 2019-Ohio-1886, 135 N.E.3d 1271 (8th Dist).
{¶ 12} Karen argued in the Eighth District that intervention in the case was necessary "to protect her interest in David's 50 percent RAM Sensors stock" because "David's share of the stock [was] security for David's spousal support obligations-both current and future-and the conveyance of David's interest in the stock as partial satisfaction of the judgment was illegal." Id. at ¶ 31. The Eighth District rejected her arguments, explaining:
Karen's interest in David's share of the RAM Sensors stock * * * is a lien that becomes due in the future; it is not a present interest in ownership of the stock. As part of the divorce settlement,
David agreed to pay Karen $450,000 in additional support beginning December 2034. He then executed a cognovit note in the amount of $450,000 and secured it with a lien on his share of RAM Sensors stock, which was perfected by a stock pledge agreement and recorded with the Ohio Secretary of State. And the record shows that the transfer of David's 50 percent share to Cody was made subject to Karen's interest. Karen's interest in the stock, as a secured creditor, is therefore preserved. The evidence does not support Karen's argument that documents were executed entitling her to immediate transfer of David's stock for satisfaction of David's current support indebtedness, i.e., a new stock agreement, cognovit note, or UCC statement.
Id. at ¶ 32. The appellate court further reasoned:
Karen's purported interest in the action is that of a lienholder-she has a lien on David's share of RAM Sensors stock that was transferred to Cody in partial satisfaction of the money judgment. Karen's interest in the stock becomes due in 2034, and the record establishes, through the settlement agreement and Cody's affidavit, that Cody takes David's stock subject to the lien created by the stock pledge agreement between Karen and David. The underlying action did not seek to foreclose or extinguish Karen's lien. And Karen fails to demonstrate how the disposition of the underlying action in her absence may impair or impede her ability to protect this interest.
Id. at ¶ 36. The Eighth District affirmed the trial court's denial of Karen's motions to intervene and vacate the agreed judgment entry. Id. at ¶ 44-46.
{¶ 13} In January 2019 (before the Eighth District released its decision in Miller), Karen filed another postdecree pleading in her and David's divorce case in the domestic-relations court: a complaint for a declaratory judgment and other equitable relief. This time, however, she named David and Cody as defendants. She sought a declaration that David's ownership of the Ram Sensors stock "secure[d] all [his] obligations" under the parties' divorce decree, including his monthly spousal-support payments. She further requested that...
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