Reed v. Reed
| Decision Date | 20 March 2009 |
| Docket Number | No. S-06-757.,S-06-757. |
| Citation | 763 N.W.2d 686,277 Neb. 391 |
| Parties | Jeffrey Jay REED, appellee, v. Christine Jennifer REED, appellant. |
| Court | Nebraska Supreme Court |
John W. Ballew, Jr., and Jennifer L. Tricker, of Ballew Covalt, P.C., L.L.O., Lincoln, for appellant.
Mark Porto, of Shamberg, Wolf, McDermott & Depue, for appellee.
Christine Jennifer Reed and Jeffrey Jay Reed's marriage was dissolved by the district court, but the court rejected Christine's claims that Jeffrey's predivorce transfers of certain business assets were fraudulent. The primary issues in this appeal are whether the transferees of disputed transfers are necessary parties to an action brought under Nebraska's Uniform Fraudulent Transfer Act (UFTA),1 and whether Christine can obtain equitable relief for the alleged dissipation of marital assets. For the reasons that follow, we conclude that the absence of necessary parties precluded Christine from proceeding under the UFTA and that Christine has not shown that Jeffrey dissipated marital assets. Therefore, we affirm the district court's judgment.
In 1997, Christine and Jeffrey formed C.J. Reed Enterprises, Inc. (C.J. Reed), to purchase and operate a jewelry store. Christine and Jeffrey obtained bank financing, and Jeffrey's parents, James and Precious Reed, agreed to act as sureties on the loan. On July 11, 1997, Christine, Jeffrey, James, and Precious executed an agreement setting forth each party's rights and obligations. At the time, Christine and Jeffrey each owned one-half the shares of C.J. Reed stock. The agreement specified that James and Precious could take title to all of C.J. Reed's stock if Christine or Jeffrey failed to discharge her or his obligations as owners of C.J. Reed to the satisfaction of James and Precious. Among other things, the agreement required Christine and Jeffrey to avoid "default" in making "payment to trade creditors or any other creditors."
In 2000, James and Precious paid Christine and Jeffrey's bank debt and became the sole financiers of the business. The principal on Christine and Jeffrey's loan was $576,595.92, and interest was calculated at $188,163, assuming the loan was paid within 10 years. Between May 2001 and the time of the divorce proceeding, Christine and Jeffrey paid $3,000 toward the principal and $40,000 toward the interest. Christine and Jeffrey each concede that this constituted a "default" within the meaning of the July 1997 agreement with James and Precious.
In January 2004, Jeffrey formed R.S. Wheel, L.L.C., with Dr. Steven Schneider. R.S. Wheel spent $380,000 (or between $3 and $4 a square foot) to purchase a former motel property in Grand Island, Nebraska, across the street from a location where Wal-Mart planned to open a store. The hope was that the land could be resold for a profit due to its location. R.S. Wheel obtained bank financing for the purchase and, at the time of trial, owed $383,842.70 on the loan.
Jeffrey informed James in early June 2004 of his intent to divorce Christine, and James evidently informed Jeffrey that if Jeffrey was going to divorce Christine, James and Precious were going to take the jewelry store. So, on June 11, James and Precious notified their attorney that they wanted to exercise their option to take title of C.J. Reed. On June 15, Christine and Jeffrey were sent letters informing them that James and Precious were transferring all the shares of C.J. Reed stock to themselves. An appraiser, hired by Christine, opined that on March 31, 2004, based on the income of the business, the stock was worth between $164,900 and $178,700. But it is unclear from the record and testimony whether that valuation accounted for the debt to James and Precious, and it appears that it did not. James and Precious later sold the business, but were unable to sell if for enough money to cover the outstanding debt.
Jeffrey also discussed his plans to divorce Christine with Schneider. Schneider said that because of the divorce, Jeffrey was unsure of his future cashflow or ability to assist in making payments on R.S Wheel's debt. Jeffrey also suggested that R.S. Wheel might be unable to sell or develop the property because of the imminent divorce proceedings. Jeffrey suggested that Schneider find another partner or buy Jeffrey out. Schneider agreed to buy Jeffrey out, and on June 18, 2004, Jeffrey transferred his interest in R.S. Wheel to Schneider. In return, on June 21, Jeffrey received a check for $15,000.
Jeffrey filed for divorce on June 24, 2004. Christine answered Jeffrey's complaint and counterclaimed for dissolution. Christine's operative counterclaim alleged that the transfer of C.J. Reed stock and the sale of Jeffrey's interest in R.S. Wheel were fraudulent transfers within the meaning of the UFTA. Christine prayed that the court "make a determination as to whether a fraudulent conveyance of real and/or personal property has occurred immediately prior to the filing of this divorce, whether the marital estate was dissipated as a result thereof and enter such equitable relief as may be appropriate." It should be noted the record contains no indication that James, Precious, or Schneider were made parties to or formally notified of the fraudulent transfer claim or that either Christine or Jeffrey sought to implead James, Precious, or Schneider, or provide them with formal notice.
On July 26, 2004, Schneider and Jeffrey, who is employed as a real estate broker, entered into an "Exclusive Listing Agreement" for Jeffrey to list R.S. Wheel's property for sale at a price of $925,000. Jeffrey was to receive a 5-percent commission of the gross sale price for his work in selling the property. But at the time of trial, the property had not been sold. Jeffrey testified that the property had been listed at $6 to $8 per square foot and might be worth that once it was developed. But Jeffrey also testified that R.S. Wheel has "paid $3 to $4 a square foot for [the property]; that's what it's worth." Jeffrey and Schneider both testified that the price on the listing was high so it would be easier to negotiate with potential buyers by lowering the price.
In addition, a temporary child support and spousal support order was entered on December 1, 2004, although the amount Jeffrey was to pay each month was reduced in an order filed March 15, 2005. On December 12, Christine filed a motion for an order to show cause why Jeffrey should not be held in contempt of court, alleging a total arrearage of $9,544.72.
The district court deferred ruling on the contempt issue until after a trial on all issues had been completed. In its decree, the court awarded sole legal and physical custody of the parties' children to Christine and entered permanent awards of child support and alimony. The court dismissed the contempt action, reasoning that the "orders for child support and alimony under [the] Decree are less than the temporary orders and [Jeffrey] now has greater resources available to pay on arrearages." The court also rejected Christine's arguments with respect to fraudulent transfers. The court reasoned, with respect to C.J. Reed, that Christine and Jeffrey were in default on their payments to James and Precious, giving James and Precious the right to transfer the C.J. Reed stock. The court concluded that "[t]he transfer of stock to James and Precious Reed was not a fraudulent conveyance, but rather a transfer of secured property pursuant to [the financing agreement]."
With respect to R.S. Wheel, the court reasoned that "the parties were not in good financial shape" at the time of the sale and that a divorce was certain to bring additional expenses in the form of child support and alimony. Jeffrey had testified that he would have been unable to service his portion of R.S. Wheel's debt. Thus, the court concluded that "the sale of Jeffrey's interest [in R.S. Wheel] to Dr. Schneider was for legitimate financial reasons and was not a fraudulent transfer as alleged by Christine."
Christine appealed, and we affirmed the judgment.2 Christine filed a motion for rehearing, which we sustained. We now withdraw our original opinion, for the reasons explained below, and substitute this opinion affirming the judgment.
In her appellate brief, Christine assigns that the district court erred in failing to (1) find that the transfer of Jeffrey's interest in R.S. Wheel was a fraudulent transfer in violation of the UFTA, (2) find that the transfer of Jeffrey's interest in C.J. Reed was a fraudulent transfer in violation of the UFTA, (3) set aside the transfers of Jeffrey's interest in R.S. Wheel and C.J. Reed for the purposes of determining the value of the marital estate and dividing it equitably, and (4) include the value of the fraudulent transfers in the marital estate and distribute the value equitably between the parties.
In addition, in our order sustaining Christine's motion for rehearing, we directed the parties to brief (1) whether the public policy of the UFTA would be served by applying its provisions to the transfer of alleged marital assets and (2) whether the trial court's jurisdiction to consider Christine's fraudulent transfer claims was affected by the absence of necessary parties.
In an action for the dissolution of marriage, an appellate court reviews de novo on the record the trial court's determinations of custody, child support, property division, alimony, and attorney fees; these determinations, however, are initially entrusted to the trial court's discretion and will normally be affirmed absent an abuse of that discretion.3
A jurisdictional question that does not involve a factual dispute is determined by an appellate court as a matter of law, which requires the appellate court to reach a conclusion independent of the lower court's decision.4
In our initial decision in...
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