Pulkkila v. Pulkkila

• Citation: 2020 WI 34,391 Wis.2d 107,941 N.W.2d 239
• Decision Date: 14 April 2020
• Docket Number: No. 2018AP712-FT,2018AP712-FT
• Parties: Joan C. PULKKILA, Petitioner-Appellant, v. James M. PULKKILA, Respondent, Lynnea Landsee-Pulkkila, Other Party-Respondent-Petitioner.
• Court: United States State Supreme Court of Wisconsin

391 Wis.2d 107

941 N.W.2d 239

2020 WI 34

Joan C. PULKKILA, Petitioner-Appellant,

v. James M. PULKKILA, Respondent,Lynnea Landsee-Pulkkila, Other Party-Respondent-Petitioner.

No. 2018AP712-FT

Supreme Court of Wisconsin.

Oral Argument: October 14, 2019

Opinion Filed: April 14, 2020

For the other party-respondent-petitioner, there were briefs filed by Jeffrey A. Mandell, Eileen M. Kelley, Jared M. Potter, and Stafford Rosenbaum LLP, Madison and Milwaukee. There was an oral argument by Jeffrey A. Mandell.

For the petitioner-appellant, there was a brief filed by Daniel J. O'Brien, Angela C. Foy, and Halling & Cayo, S.C., Milwaukee. There was an oral argument by Daniel J. O'Brien.

ANN WALSH BRADLEY, J.

¶1 The petitioner, Lynnea Landsee-Pulkkila (Lynnea), seeks review of an unpublished, authored decision of the court of appeals applying a constructive trust to proceeds she collected from a life insurance policy maintained by her late husband, James Pulkkila (James).¹ She asserts that the court of appeals erred by determining that a constructive trust is an available remedy and by applying that remedy.

¶2 James and Joan Pulkkila (Joan) divorced in 2009. They arrived at a marital settlement agreement (MSA), which the circuit court incorporated in its judgment of divorce. The MSA contained a provision requiring James and Joan to maintain life insurance with their children as beneficiaries. Joan alleges that James breached this provision when he made Lynnea, whom he married in 2013, the sole beneficiary of his life insurance policy. She argues that a constructive trust should be placed on the proceeds.

¶3 Lynnea contends that a constructive trust cannot be applied to the life insurance proceeds because the MSA provides that a lien on James's estate is the exclusive remedy for breach of the life insurance provision. Further, she asserts that the court of appeals erred by applying a constructive trust in the absence of additional proceedings in the circuit court.

¶4 We conclude first that the lien provision of the MSA is not an exclusive remedy. Second, we conclude that the court of appeals erred in imposing a constructive trust absent findings of fact that would support such an imposition. We remand to the circuit court to engage in factfinding and subsequently determine whether to impose a constructive trust in the first instance.

¶5 Accordingly, we reverse the decision of the court of appeals and remand to the circuit court for further proceedings consistent with this opinion.

I

¶6 James and Joan were married in 1996 and divorced in 2009. At the time of the divorce, they had two minor children.

¶7 As the divorce proceeded, James and Joan negotiated the MSA. They arrived at an agreement and submitted the MSA to the circuit court, which incorporated the MSA into its judgment of divorce.²

¶8 The MSA contains a section entitled, "Life Insurance." Pursuant to this section, James and Joan agreed as follows:

Both parties shall maintain in full force and pay the premiums on all life insurance presently in existence on their lives or obtain comparable insurance coverage, with the parties' minor children named as sole and irrevocable primary beneficiaries until the youngest minor child reaches the age of majority, or until the child has reached the age of 19 so long as the child is pursuing an accredited course of instruction leading to the acquisition of a high school diploma or its equivalent. During the term of such obligation, each of the parties shall furnish the other with copies of such policies or evidence of there being such insurance in force and proof of beneficiary designation upon request.

¶9 Further, the "Life Insurance" section of the MSA sets forth a remedy in the event either party breaches the provision. Specifically, it provides:

If either party fails for any reason to maintain any of the insurance required under this article, there shall be a valid and provable lien against his or her estate in favor of the specified beneficiary to the extent of the difference between the insurance required and the actual death benefits received.

¶10 Prior to the divorce, in 2002, James obtained a $250,000 life insurance policy from Banner Life. At the time he obtained the policy, James named Joan as the primary beneficiary.

¶11 In 2013, James and Lynnea were married, and the following year James submitted a beneficiary name change request to Banner Life, asking that Lynnea be made the sole beneficiary of the policy. James passed away in 2015. At the time of his death, both of his children were minors.

¶12 Banner Life paid Lynnea the proceeds of the policy. Subsequently, Joan filed a motion in the divorce action seeking three iterations of relief. First, she moved to join Lynnea to the action as a third party, asserting that "the proceeds from one of [James's] life insurance policies were paid to Ms. Landsee-Pulkkila in violation of the [Judgment] of Divorce and complete relief cannot be accorded unless Ms. Landsee-Pulkkila is joined."

¶13 Second, Joan moved to enforce the judgment of divorce, seeking "an order requiring Ms. Landsee-Pulkkila to return proceeds from [James's] life insurance policy that were paid to her in violation of the Judgment of Divorce in this matter and for such other relief as the Court deems appropriate." Third, Joan moved to establish a constructive trust for the children's benefit over the life insurance proceeds that were paid to Lynnea.

¶14 The circuit court held a hearing and ultimately denied Joan's motion for a constructive trust, reasoning that the MSA unambiguously provided that a lien on James's estate is the exclusive remedy for breach of the life insurance provision. Because it determined the lien remedy to be exclusive, it concluded that a constructive trust was not an available remedy. It explained:

[T]he court's job isn't to go back and fix the parties' agreement to make it fair now for the children. It's not fair they're not getting as much money. They lost their father. It is a rotten deal for them. However, this court has to follow the law on it. The contract is not ambiguous to this court. That is simply a question of law.... It is clear to this court that that was the bargaining, and I'm not going to step outside of their agreement to provide for other remedies.

¶15 Additionally, the circuit court expressly declined to address several of the issues raised by Joan's motion and Lynnea's response, reasoning that such issues could be addressed if necessary on remand from an appellate court. It stated, "I believe that if I am overturned, the court will give some instructions that we have to have a hearing as to what to do with this constructive trust." It further stated that it would not be taking up the issue of whether the proper parties were before the court, but again, it may do so on remand if necessary: "The court may or may not take up the issue of whether or not we have the proper parties to this, that is the question I'm not reaching today. So the court may send that back with directions as well."

¶16 Joan appealed, and the court of appeals reversed and remanded. Pulkkila v. Pulkkila, No. 2018AP712-FT, unpublished slip op., ¶1, 2019 WL 947678 (Wis. Ct. App. Feb. 27, 2019). First, it rejected the circuit court's conclusion that the lien remedy in the MSA is an exclusive remedy. Id., ¶9. Specifically, it determined that such a remedy was "meaningless" under the facts of this case because James's estate contained nowhere near enough money to provide for his children in the manner the life insurance proceeds would have provided:

The problem with this argument is that the remedy is meaningless. Equity might allow for James' wrongdoing if his estate had $250,000, but it did not. It had $5600. James' new wife cites no case law, and we have found none, where under these or similar factual circumstances, a constructive trust is unavailable if a meaningless remedy exists. Id.

¶17 The court of appeals determined next that "[t]he equities of this case mandate the creation of a constructive trust in favor of the children so as to accomplish the intent of the MSA." Id., ¶10. In the court of appeals' view, "[a]ll of the requirements of a constructive trust have been satisfied: James' new wife received and retained a benefit, which was unjust to James' children who were denied their guaranteed means of support, and the aforementioned unjust enrichment was the result of James' wrongful conduct in violating the MSA." Id. Accordingly, it concluded that "[e]quity requires the imposition of a constructive trust." Id. Lynnea petitioned this court for review.

II

¶18 We are called upon to review the court of appeals' decision determining that a constructive trust must be imposed. A decision to impose a constructive trust is subject to a two-tiered standard of review. Sulzer v. Diedrich, 2003 WI 90, ¶16, 263 Wis. 2d 496, 664 N.W.2d 641. Legal issues, such as the interpretation of a marital settlement agreement, are reviewed independently of the determinations rendered by the circuit court and court of appeals. Id.; Topolski v. Topolski, 2011 WI 59, ¶28, 335 Wis. 2d 327, 802 N.W.2d 482.

¶19 However, the ultimate decision of whether to grant the equitable relief of a constructive trust is reviewed for an erroneous exercise of discretion. Sulzer, 263 Wis. 2d 496, ¶16, 664 N.W.2d 641 ; Pluemer ex rel. Buggs v. Pluemer, 2009 WI App 170, ¶9, 322 Wis. 2d 138, 776 N.W.2d 261. An exercise of discretion is erroneous if it is based on an error of law or fact. Horizon Bank, Nat'l Ass'n v. Marshalls Point Retreat LLC, 2018 WI 19, ¶29, 380 Wis. 2d 60, 908 N.W.2d 797. A discretionary determination will be upheld as long as the court "examined the relevant facts, applied a proper standard of law, and, using a demonstrated rational process, reached a conclusion that a reasonable judge could reach." LeMere v. LeMere, 2003 WI 67, ¶13, 262 Wis. 2d 426, 663 N.W.2d 789 (quoting Long v. Long, 196 Wis. 2d 691, 695, 539 N.W.2d 462 (Ct....