Vallone v. Vallone

• Decision Date: 31 December 1982
• Docket Number: No. C-556,C-556
• Citation: 644 S.W.2d 455
• Parties: Tony VALLONE v. Leslie Ann Dours VALLONE.
• Court: Texas Supreme Court

Page 455

644 S.W.2d 455

Tony VALLONE v. Leslie Ann Dours VALLONE.

No. C-556.

Supreme Court of Texas.

Dec. 31, 1982.

Rehearing Denied Feb. 9, 1983.

Piro & Lilly, Robert J. Piro and Ann J. Crawford, Houston, for petitioner.

Boswell, O'Toole, Davis & Pickering, J. Huey O'Toole and John D. Payne, Houston, for respondent.

RAY, Justice.

This is an appeal from a division of property in a divorce action. At issue is whether the trial court abused its discretion by not specifically considering the community's interest, if any, in the increase in value of the separate property portion of stock in a closely-held corporation in which all of the corporation's stock was issued in the husband's name. The stock was originally received in exchange for both community and separate assets. The court of civil appeals held that the trial court, "in making a division of the estate, did not take into consideration the large increment to [the husband's] separate property by reason of community labor and as a result the division of the estate was manifestly unfair to [the wife]." 618 S.W.2d 820, 824. We reverse the judgment of the court of civil appeals and affirm the judgment of the trial court.

The holding of the court of civil appeals in this case conflicts with the holding in Hale v. Hale, 557 S.W.2d 614 (Tex.Civ.App.--Texarkana 1977, no writ). In Hale, the court held that a contribution of community labor should not be taken into account in determining the amount of reimbursement that may be owing to the community by the benefited separate estate. Under Tex.Rev.Civ.Stat.Ann. art. 1728 Sec. 2, we have jurisdiction to review this case.

Tony and Leslie Vallone were married in 1966. During the first years of their marriage, Tony worked in a restaurant owned and operated by his father as a sole proprietorship. In January 1969, the assets of the restaurant were transferred to Tony from his father as a gift. Tony operated the restaurant as a sole proprietorship until its incorporation in August 1969. The initial capitalization consisted of $19,663 in assets. Included in the initial capital was the used restaurant equipment given to Tony by his father, valued at $9,365 (or slightly over 47% of the initial capital).

During the period beginning with the incorporation of the restaurant until the couple divorced, the business prospered. The restaurant business constituted the major asset of both the community estate and the husband's separate estate. Tony received approximately $200,000 per year as salary and bonus from the corporation. Many of the couple's personal transactions were handled through the corporation.

The trial court granted the divorce, awarded custody of the minor children to Tony, and filed findings of fact and conclusions of law in support of the division of property. The court found the business to be worth $1,000,000. Finding that 47% of its initial capitalization was traceable to Tony's separate estate, the trial court set aside a proportionate share of the corporate stock as Tony's separate property. The trial court then awarded Leslie 70% of the remaining stock as her share of the community interest in the corporation, subject to redemption provisions. The decree ordered Tony's Restaurant, Inc., to purchase Leslie's share of the stock for a cash payment of $77,000 and a $300,000 note personally guaranteed by Tony and secured by all of the stock in Tony's. The court of civil appeals calculated that Leslie received 51.4% of the net estate. Tony was ordered to assume all tax liabilities.

Leslie appealed the division of property. The court of civil appeals determined that the transfer of restaurant equipment from father to son was a gift, not a sale, and that the corporation was not operated as Tony's alter ego. But while further affirming the trial court's finding that 47% of the corporate stock was Tony's separate property, the court of civil appeals sustained Leslie's point of error that the trial court's division of the property was so manifestly unfair as to amount to an abuse of discretion, determining "that the court, in making a division of the estate, did not take into consideration the large increment to appellee's separate property by reason of community labor...." 618 S.W.2d at 824.

The case comes to us in the following posture: Did the trial court abuse its discretion by ignoring community rights and equities which might have existed in the corporation?

At trial, Leslie asserted that the increase in the value of the corporation's stock should be considered as part of the community, alleging that the corporation existed as Tony's alter ego. She further requested reimbursement if, to quote from her pleadings, "(1) money or property of one of the petitioner's estates (separate or community); (2) has been used or expended to benefit the receiving estate (separate or community); (3) for which Petitioner's contributing estate received no quid pro quo; (4) thereby unjustly enriching the receiving estate."

Consideration of whether a corporation is an alter ego for purposes of determining whether assets held in the corporation's name should be treated as community property is an issue of fact from which the status of the property is determined. Cockerham v. Cockerham, 527 S.W.2d 162 (Tex.1975); Goetz v. Goetz, 567 S.W.2d 892 (Tex.Civ.App.--Dallas 1978, no writ). The trial court and the court of civil appeals found that the restaurant corporation was not Tony's alter ego. No error of law has been correctly preserved on this point. Leslie's second cross-point states that the courts below erred in finding that the corporation was not the alter ego of Tony. For argument, Leslie adopts and incorporates by reference her point in her appellant's brief. The point was preserved in the court of civil appeals specifically as a "greater weight and preponderance of the evidence" point. A careful reading of the argument shows that the sum and substance of that point is directed towards a "greater weight and preponderance of the evidence" analysis. Authorities are cited to provide the framework in which the facts are to be construed. The court of civil appeals' opinion uses substantially the same alter ego test stated in Leslie's briefs. More importantly, Leslie's briefs in this Court do not assert that the court of civil appeals applied the wrong test or applied the correct test incorrectly. This leaves a factual determination which this Court does not have jurisdiction to decide. Similarly, Leslie challenged the characterization of the marital property in two points in her court of civil appeals brief. The first was a greater weight and preponderance of the evidence point and the second an insufficiency of the evidence point. The argument under the insufficiency point is clearly a factual insufficiency argument. We do not have jurisdiction to pass upon either of these points and are therefore bound by the finding of the courts below that the corporation was not the alter ego of Tony. In this respect, no constructive fraud was perpetrated upon the community.

Characterization of property as separate, however, does not necessarily preclude the right to reimbursement. Questions concerning the right to reimbursement do not concern which estate owns legal or equitable title in certain property. Rather, such questions entail

the consideration of what is to be done with community property that by its very nature forms such a part of the separate estate of one spouse as not to be separable therefrom. The difficulty is not so much in deciding what is and what is not community property, but in deciding when and to what extent the separate estates should reimburse the community, and vice versa.

O. Speer, Texas Family Law Sec. 22.38 (5th ed. 1976).

When separate property is combined with community time, talent and labor, and both the community and the separate estate make claim upon the increment, the courts are confronted with conflicting principles of marital property law. It is fundamental that any property or rights acquired by one of the spouses after marriage by toil, talent, industry or other productive faculty belongs to the community estate. Nevertheless, the law contemplates that a spouse may expend a reasonable amount of talent or labor in the management and preservation of his or her separate estate without impressing a community character upon that estate. Norris v. Vaughn, 152 Tex. 491, 260 S.W.2d 676 (1953); Hardee v. Vincent, 136 Tex. 99, 147 S.W.2d 1072 (1941).

The rule of reimbursement is purely an equitable one. Colden v. Alexander, 141 Tex. 134, 171 S.W.2d 328 (1943). It obtains when the community estate in some way improves the separate estate of one of the spouses (or vice versa). The right of reimbursement is not an interest in property or an enforceable debt, per se, but an equitable right which arises upon dissolution of the marriage through death, divorce or annulment. Burton v. Bell, 380 S.W.2d 561 (Tex.1964); Dakan v. Dakan, 125 Tex. 305, 83 S.W.2d 620 (1935).

A right of reimbursement arises when the funds or assets of one estate are used to benefit and enhance another estate without itself receiving some benefit. Dakan v. Dakan, supra. We hold it also arises when community time, talent and labor are utilized to benefit and enhance a spouse's separate estate, beyond whatever care, attention, and expenditure are necessary for the proper maintenance and preservation of the separate estate, without the community receiving adequate compensation. ¹ To the extent that Hale v. Hale, supra, held that the expenditure of community time, talent and labor may under no circumstances give rise to an equitable right of reimbursement in the community's favor, it is hereby disapproved.

The party claiming the right of reimbursement has the burden of pleading and proving that the expenditures and improvements were made and that they are reimbursable. Lindsay v. Clayman, supra; Wachendorfer v. Wachendorfer, ...