Nagle v. Nagle

• Decision Date: 16 May 2002
• Parties: Mary NAGLE, Appellee, v. James D. NAGLE, Appellee, v. Gary Nagle, Appellant.
• Court: Pennsylvania Superior Court

799 A.2d 812

Mary NAGLE, Appellee, v. James D. NAGLE, Appellee, v. Gary Nagle, Appellant.

Superior Court of Pennsylvania.

Argued January 16, 2002.

Filed May 16, 2002.

Edward E. Zang, Altoona, for appellant.

Walter Swartzkopf, Altoona, for Mary Nagle, appellee.

Before DEL SOLE, P.J., BOWES and KELLY, JJ.

BOWES, J.

¶ 1 Gary Nagle has appealed following entry of an equitable distribution award entered in this divorce action between his parents, Mary S. and James D. Nagle. He challenges a number of the divorce court's decisions relating to eighty shares of stock that are titled in Appellant's name.¹ The divorce court concluded that the stock was marital property, imposed a constructive trust on the stock in favor of Appellant's parents, valued the stock for equitable distribution purposes as of the date of distribution, and ordered Appellant to buy-out his parents' interest in the stock. We affirm.

¶ 2 The record indicates the following. On October 21, 1994, Mary Nagle ("Wife") instituted this divorce action against James Nagle ("Husband"). She indicated that she and her husband were married on July 23, 1942, and that they had been separated for more than two years. The record also indicates that the parties actually had been separated since approximately 1972, that they had seven children, and that during the 1950s, Wife was a homemaker raising those children. In her divorce complaint, Wife requested alimony, alimony pendente lite, costs, counsel fees, and equitable distribution of the marital property. On April 4, 1995, the parties entered a consent order regarding the payment of alimony pendente lite, which was set in the amount of $1,000 per month. The matter was referred to a master.

¶ 3 Two master's hearings were held in June 1997, two additional hearings were held in October 1997, and a final hearing was held in January 1998. On May 4, 1998, Wife filed a motion to join Appellant as an additional defendant and filed a third party complaint against him. Those documents contain the following allegations. The primary marital assets consist of land, which is jointly owned by Husband and Wife, and a business located on that land. The business is known as James Nagle's Rebuilt Truck Parts and Sales, Inc. (the "Corporation"). Its stock, which at one time was owned wholly by Husband and was acquired during the marriage, primarily is titled in Appellant's name. Husband transferred his majority interest in the business to Appellant without consideration on January 11, 1995, approximately three months after this divorce action was instituted. At the June master's hearings, the parties stipulated that for equitable distribution purposes, Husband owns eighty percent of the stock. Attached to the joinder petition is an excerpt from the master's hearing wherein Husband stipulated that he owned eighty percent of the stock of the Corporation, and Wife agreed to this stipulation. "[Appellant] was present when [this] stipulation was made." Third Party Complaint, 4/30/98, at ¶ 11.

¶ 4 Husband's expert witness testified that the stock was worth $297,000 while the land was worth $270,000. The parties agreed to this valuation. In addition, Wife's expert witness performed an inventory of the company and determined that its inventory of used truck parts was worth over $2,000,000.

¶ 5 It also was established at the master's hearing that Husband's sources of income were limited to his social security benefits and the company's payment of $2,500 a month on a loan that Husband made to it. However, the evidence established that Husband would withdraw "large amounts" of money from the Corporation for land rental and for repayments of other purported loans. Motion to Join Additional Party Defendant and to Stay Proceedings, 4/30/1998, at ¶ 17.

¶ 6 Wife also averred the following. Husband made the transfer of stock to Appellant to avoid paying Wife the large sum of money that might be due her as a result of any equitable distribution award regarding the $2,297,000 in assets that he owned prior to the stock transfer. Appellant was aware of the divorce proceedings at the time the stock was transferred to him, was aware that these sums may be payable to his mother, and participated in the fraud on her marital rights by accepting the transfer to remove the property from the jurisdiction of the divorce court. The transfer also unjustly enriched Appellant. Wife asked that a constructive trust be imposed on the stock.

¶ 7 Appellant answered the complaint in relevant part as follows. He contended that the company was incorporated after the parties separated. He also denied that the transfer was made to defeat Wife's marital interest, alleging that the transfer was "pursuant to an estate plan." Answer to Motion to Join Additional Defendant and to Stay Proceedings, 6/11/98, at ¶ 18. In addition, Appellant alleged that he paid consideration for the stock by virtue of his work for the Corporation.

¶ 8 On August 4, 1998, Wife's joinder motion was granted. Appellant then petitioned to re-open the record so that he could dispute the finding that the stock was marital property and the value placed on the stock at the June 1997 hearings. That petition was denied.

¶ 9 Husband filed an answer to the third party complaint, in which he admitted that he owned the "business at the time of separation" and stated that it was "not incorporated until thereafter." Original Defendant's Answer to Third Party Complaint, 8/24/98, at ¶ 7. Husband also made averments similar as to Appellant, alleging that the transfer was pursuant to a valid estate plan and that Appellant paid consideration for the transfer by managing the Corporation.

¶ 10 Wife then replied to the allegations contained in Appellant's pleadings, alleging that the incorporation occurred before separation and that the business had existed as a sole proprietorship for "some time" before it was incorporated. Reply to New Matter, 9/14/98, at ¶ 19. Attached to the reply is a portion of the master's hearings containing Wife's testimony. That testimony confirms the factual averments in Husband's pleadings that the business was started before 1972. Furthermore, her testimony indicates that the business was located on the acreage surrounding the marital home and that when it was opened, she helped with the business by answering the telephone, completing paperwork, cleaning the office, and organizing parties. She maintained that she continued to help with the business for five years after the parties' separation.

¶ 11 Also attached to Wife's reply is a portion of the testimony of Robert C. Nagle, another of the parties' sons, taken from the June 4, 1997 master's hearing. Robert testified that he was involved in the business when it was started, that it was opened fifteen to eighteen months prior to its incorporation, and that when it was incorporated, Husband received 100% of the stock. Robert also stated that the separation date was "well after the incorporation." Master's Hearing, 6/4/97, at 41. Robert testified that the separation occurred at the beginning of 1973, when Husband went to live in a trailer in Martinsburg, Maryland.

¶ 12 On November 30, 1998, Appellant filed a "counter complaint" requesting attorney's fees and costs incurred in defense of the third-party claim. He claimed that the action was frivolous and vexatious. Thereafter, Wife moved to bifurcate the proceedings, a divorce decree was entered on December 11, 1998, alimony pendente lite was continued until the economic issues were resolved, and Husband was relieved of his obligation to provide medical insurance for Wife.

¶ 13 On February 1, 1999, a hearing was held regarding the issue of whether a constructive trust should be imposed. Husband testified that he did not know the date of separation. However, Robert Nagle testified that he recalled specifically that while Husband left the marital residence in 1972, he returned and was living there when the Corporation was formed on October 26, 1972. Robert stated that the parties did not permanently separate until late 1972 or early 1973, and his father was sleeping overnight occasionally at the house through 1974 and even into 1975. Robert testified that his mother and father were living together when the business was incorporated, a fact he remembered because he drove his father to the incorporation. Appellant conversely testified that Husband and Wife were separated when the business was incorporated. ¶ 14 Husband transferred the stock as follows. Appellant and Robert each received ten shares in 1988. On January 11, 1995, the controlling interest was transferred to Appellant. After the hearing, the divorce court found that eighty shares of the stock had been transferred to Appellant without consideration and that the transfer unjustly enriched Appellant to the detriment of Wife and Husband. While Appellant did work in the business, the divorce court noted that he had been compensated consistently with a managerial salary that had increased over the years. The court concluded that Appellant's "efforts in managing the business were compensated by salary, and the extremely, large transfer of the controlling stock (eighty (80) shares ...) was not justifiable compensation." Trial Court Opinion, 8/24/99, at 12.

¶ 15 The divorce court acknowledged that while the stock might have been transferred pursuant to an estate plan, "there is no explanation or involvement of [Wife's] potential interest in the estate plan." Id. In addition to imposing a constructive trust in favor of Husband and Wife, the divorce court also concluded that the transfer was a fraudulent transfer with respect to Wife under the Uniform Fraudulent Conveyance Act. In making this determination, the divorce court observed that the following facts established that Husband retained control over the Corporation even after the January 1995 stock transfer:

Both Gary Nagle and the bookkeeper, Theresa Tutko, have

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