* * * * * * * * (Court composed of Chief Judge Joan Bernard Armstrong, Judge Michael E. Kirby and Judge Max N. Tobias Jr.)

Transcription

1 BARBARA DENAIS SMITH VERSUS ROGER D. SMITH * * * * * * * * * * * NO CA-0690 COURT OF APPEAL FOURTH CIRCUIT STATE OF LOUISIANA APPEAL FROM CIVIL DISTRICT COURT, ORLEANS PARISH NO , DIVISION DRS-2 Honorable Madeleine Landrieu, Judge * * * * * * CHIEF JUDGE JOAN BERNARD ARMSTRONG * * * * * * (Court composed of Chief Judge Joan Bernard Armstrong, Judge Michael E. Kirby and Judge Max N. Tobias Jr.) RICHARD J. MCGINITY, JR WICHERS DRIVE SUITE 303 MARRERO, LA COUNSEL FOR PLAINTIFF/APPELLANT PHILIP RIEGEL, JR. 210 BARONNE STREET SUITE 1421 NEW ORLEANS, LA COUNSEL FOR DEFENDANT/APPELLEE

2 AFFIRMED AS AMENDEDPlaintiff-appellant, Barbara Smith, appeals a judgment partitioning certain community assets. Her former spouse, the defendant-appellee, Roger D. Smith, answered the appeal. The parties were married on August 3, 1974 and the date of the divorce was November 13, The parties stipulated that the community was terminated on October 8, Plaintiff subsequently filed for a partition of community assets on September 18,1997. After trying the matter, the trial court rendered a partition judgment with written reasons on October 8, The parties each appeal only certain portions of the judgment, not the judgment in its entirety. Only the contested items will be discussed herein. At the outset we wish to emphasize that the overarching principle in cases such as this is that the trial judge is afforded a great deal of latitude in arriving at an equitable distribution of assets between the spouses. Lupberger v. Lupberger, , p. 13 (La.App. 4 Cir. 12/5/01), 805 So.2d 264, 272; Major v. Major, , (La.App. 4 Cir. 4/3/96), 671 So.2d 571. In her first assignment of error, the plaintiff contends that the trial court erred by failing to adequately address the damages sustained by the

3 community as a consequence of Dr. Roger Smith s failure to account for rents he collected from community property before and after the termination of the marriage. Among the assets of the community were a one-half interest in rental property at Fourth Street in uptown New Orleans as well as all of the stock in Etoile Enterprise, Inc. Etoile Enterprise, Inc. owned a piece of commercial property at 2601 Orleans Avenue in New Orleans across from Ruth s Chris Steakhouse. The trial court in its reasons for judgment rejected the defendant s testimony that the business tenant at 2601 Orleans Avenue paid no rent and that the property suffered a loss every year. The plaintiff, therefore, contends that it was error for the trial court to fail to compel the defendant to account for the rents that he must have received. But the defendant made a claim for reimbursement for mortgage payments and property expenses of $92, The trial court disallowed the defendant s claim for reimbursement for mortgage payments because he failed to account for what we might characterize as the missing rent, stating that: Dr. Roger Smith established that the property was community property and that the mortgage of $61, was satisfied. However, he failed to establish the amount of his reimbursement claim as he failed to account for rents received. The court

4 rejects his testimony that the business tenant of this property did not pay any rent and that the property suffered a loss every year. While the trial court infers that the mortgage was paid by Dr. Smith with his separate funds, as it was paid after the effective date of the dissolution of the community, thereby entitling him to a claim for reimbursement from the community, Dr. Smith s claim for reimbursement is offset by Mrs. Smith s claim for the missing rent. We find no manifest error in this finding by the trial court. However, Mrs. Smith argues that: Mere proof that the mortgage was paid is insufficient evidence to show that defendant s separate estate made the payments. Lupberger v. Lupberger, (La.App. 4 Cir. 12/5/01), 805 So.2d 264. A careful reading of the Lupberger case reveals nothing explicit or implicit that supports Mrs. Smith s contention. Likewise the trial court rejected the defendant s claim for reimbursement of taxes and insurance paid on the Orleans Avenue property: Dr. Roger Smith had exclusive control over this property, failed to collect rent and/or mitigate the community s losses. Any payments by [the defendant] for interest and taxes on this property are offset by his mismanagement of the same. Mrs. Smith argues that under La. C.C. art the defendant should

5 not be given credit for the payments he made for interest and taxes on the property as an offset against her claim for the missing rent because he failed to prove that the funds expended by him were his separate funds. La. C.C. art refers to claims for separate funds expended on behalf of the community. Implicit in this article is the assumption that the expenditure of separate funds occurred during the existence of the community. The expenditures for which the defendant claims reimbursement in the instant case were made after the dissolution of the community. The burden is not on the defendant to prove that expenditures made by him after the dissolution of the community were made with separate funds. Similarly, the presumption of community set forth in La. C.C. art would not apply. However, the burden is on the defendant to prove that he, in fact, incurred the expenses for which he seeks reimbursement. The plaintiff does not contest the fact that the defendant had expenses in connection with the Orleans Avenue property. We find no manifest error in the finding of the trial court that the amount of such expenses was sufficient to offset the speculative amount of rent the defendant theoretically should have collected from the property. It was in this manner that the trial court effectively compelled Dr. Smith to account for the missing rent. This is consistent with what we earlier pronounced to be the overarching

6 principle by which the trial court s allocation decisions should be judged by this court, i.e., that the trial court is afforded a great deal of latitude in arriving at an equitable distribution of assets between the spouses. Lupberger, supra. Regarding the Fourth Street rental property, in denying the defendant s reimbursement claim, the trial court made the following findings: 1. The party demanding reimbursement, in this case the defendant, must show that separate funds were used to satisfy the community obligation. La. C.C. art The defendant s evidence of his reimbursement claims on these properties was insufficient and/or not credible. 3. The defendant did not adequately account for the rents. 4. The defendant took 100% of the community s tax deductions, including 100% of the community co-owner s tax deductions. 5. The defendant established that he assumed

7 responsibility for payment of the entire mortgage on the property, although he produced no cancelled checks or other documentation supporting the payments. 6. The co-owner, the defendant s second wife, contributed sweat equity to the property. The defendant testified that he believed that the records for the Fourth Street property were in the possession of his second wife, but that he did not believe that it was necessary for him to bring them to court, a position justifying the trial court s refusal to credit his testimony. Accordingly, we find the foregoing enumerated findings are reasonable and sufficient to support the trial court s decision to deny Dr. Smith s claim for reimbursement in connection with the Fourth Street rental property. In his answer to the appeal, the defendant asserted that it was error for the trial court to deny his claim for reimbursements on the two above discussed rental properties. As to the Orleans Avenue property, the trial court made a credibility call against the defendant in finding that it was unbelievable that a commercial tenant would be allowed to operate for years without paying any rent. This is a reasonable inference to be drawn from the record. As the inference is reasonable, it cannot be said to be manifestly

8 erroneous. Accordingly, it was not error for the trial court to disallow the defendant s claim for reimbursement based on the trial court s conclusion that the defendant failed to render a credible accounting for the rentals on the Orleans Avenue property. As to the defendant s claim for reimbursement in connection with the Fourth Street property, we believe, based on the record, that the findings of the trial court that the defendant s evidence was insufficient and/or not credible and that he failed to adequately account for the rents, is sufficient to support the decision of the trial court to deny the defendant s claim for reimbursement in connection with the Fourth Street property. It will be recalled that the defendant testified that the rental records were in the possession of his second wife with whom he was living and residing at the time of the trial, yet he failed to produce or subpoena the records and he failed to produce or subpoena his second wife to substantiate his claim for reimbursement. In her second assignment of error, the plaintiff contends that the trial court erred by failing to adequately address the damages sustained by the community as a consequence of Roger Smith s intentional breach of his fiduciary duty to preserve and maintain community assets as a prudent administrator, resulting in the assets deterioration and substantial

9 devaluation. La. C.C. art imposes upon a spouse the duty to preserve and manage prudently former community property under his control, failing which he is answerable for fault, default, or neglect. The plaintiff claims that the community home on Valmont Street was deliberately devalued by $220,000 because of the defendant s conscious decision to defer maintenance on the property. The trial court did not find that the defendant deliberately failed to maintain the property and the record does not compel a contrary finding under the manifest error standard of review. The defendant and his second wife continued to live in the Valmont Street property after his divorce from the plaintiff. From this objective fact the trial court could reasonably infer that it was not the defendant s deliberate intention to depreciate the property. It was not manifest error for the trial court to choose to adopt the appraisal of the defendant s expert, Walter A. Marschner, MSA, GRI, in preference to that of the plaintiff s expert, F. Miller Guice, Jr., MAI, IFAS. Major, supra; Miller v. Miller, 602 So.2d 330 (La.App. 4 Cir.1992). The defendant s expert appraisal report established an as is value of $191,000.00, and an after repair value of $411,000.00, a difference of $220, However, in order to achieve this difference, Mr. Marschner s report indicated that $220, would have to

10 be expended on repairs resulting in no net gain in value as a result of the repairs. In other words, the record allows a finding consistent with the result reached by the trial court, that the value by which the Valmont Street property would be enhanced had it been maintained as the plaintiff contends it should have, was equal to the cost of such maintenance. Therefore, the record permits the trial court s implicit finding that the plaintiff suffered no loss as a result of the manner in which the defendant maintained the property, and the defendant received no benefit thereby. In her third assignment of error, the plaintiff contends that the trial court erred in allocating the Valmont Street home to Dr. Smith using time of trial as is deteriorated value, given his intentional withholding of maintenance for over ten years, the dramatic appreciation in value that occurred during the eighteen-month delay between trial and judgment and considering the source of the delay. The plaintiff particularly complains that the trial court should not have valued the Valmont Street property as of the date the trial court took the partition under submission, but should have used the higher appreciated value that would have resulted from using the date the judgment was actually rendered some eighteen months later. La. 9:2801A(4)(a) provides in pertinent part that: The court shall value the assets as of

11 the time of trial on the merits.... This provision has been carefully considered and followed literally by this Court in Hansel v. Holyfield, (La.App. 4 Cir. 12/27/00), 779 So.2d 939. We find no error in the valuation date chosen by the trial court. Moore v. Moore, 596 So.2d 252 (La.App. 3 Cir.1993), does not support the plaintiff s position. The Moore decision quotes from the Supreme Court decision in Hare v. Hodgins, 586 So.2d 118 (La.1991) as follows: Procedurally, a court partitioning community property is required to value the assets as of the time of trial on the merits. La.R.S. 9:2801(4)(a). Moore, 586 So.2d at p In her fourth assignment of error, the plaintiff contends that the trial court erred in failing to recognize that by agreement and the actions of the parties over a ten-year period, Barbara Smith was relieved of the obligation to reimburse Roger Smith for pre-partition mortgage payments and expenses on the Valmont Street home wherein he resides. This contention on the part of the plaintiff is not supported by any written documentation. The plaintiff contends that the trial court should have inferred such an agreement from the action of the parties. It is true that a reasonable fact finder could have agreed with the plaintiff based on the

12 actions of the parties. But it is also true that when applying the manifest error standard of review that we must acknowledge that the same facts permit the alternative reasonable conclusion reached by the trial court, i.e., that there was no unwritten agreement between the plaintiff and defendant to relieve the plaintiff of the obligation to reimburse the defendant for prepartition mortgage payments and expenses on the Valmont Street property. This conclusion reached by the trial court is one of fact that is not so contradicted by objective or documentary evidence or so internally inconsistent that we can say that it is manifestly erroneous or clearly wrong for the trial court to so conclude. In her fifth assignment of error, the plaintiff contends that the trial court erred by failing to credit her for one-half ($38,904.00) of the value of community property tax deductions used by Roger Smith to satisfy his separate tax obligations. The only authority cited by the plaintiff in support of this assignment of error is the case of Ball v. Ball, 520 So.2d 1143, 1144 (1987). However, that case is inapposite. It contains no mention of tax deductions or anything analogous, only a claim by the husband for the expenses of running his cattle business which was disallowed by the court and a dispute as to the amount contributed by each spouse to his or her respective retirement funds.

13 The defendant argues that La. C.C. art does not apply to plaintiff s claim for a share of the tax deductions because the community was terminated and the defendant s taking of the tax deductions did not involve the use of community property to satisfy a separate obligation. We pretermit a decision on this issue until later in this opinion where we feel it is more appropriate to consider it on an equitable basis as an offset to Dr. Smith s claim for reimbursement of his interest payments as Mrs. Smith s claim in this regard appears legally and equitably stronger as an offset to a claim for interest expense reimbursement than as an independent claim. In his answer to the appeal, the defendant contends that it was error for the trial court to deny his claim for reimbursement for mortgage interest expense paid with separate funds. This contention is based on the argument that as the trial court awarded him reimbursement for the payment of the principal portion of the first and second mortgages on the former marital domicile on Valmont Street it was inconsistent for the trial court to deny his claim for reimbursement for the interest components of those payments. The defendant concedes the propriety of the trial court s decision to offset the defendant s claim for maintenance expenses and property taxes by the value of the defendant s use of the Valmont Street property as his personal residence. La. C.C. art The defendant claims that his

14 mortgage interest expense for the years 1993 through 2000 was $137, and for 2001 was $16, While the plaintiff does not challenge the defendant s calculation of these amounts, she does challenge his right to claim reimbursement. However, the defendant contends that mortgage interest expense is not one of the expenses contemplated by La. C.C. art. 806 within the intendment of the language necessary expenses, expenses for ordinary maintenance and repairs, or necessary management expenses paid to a third person..., and, therefore, may not be offset by the value of his use of the property as his personal residence. The defendant s contention is consistent with Lupberger v. Lupberger, , p. 11 (La.App. 4 Cir. 12/5/01), 805 So.2d 264, 271, which is controlling in this Circuit as well as Roque v. Tate, (La.App. 5 Cir. 2/9/94), 631 So.2d It is at this point that the tax deductions received by Dr. Smith in connection with these payments should be given equitable consideration in favor of Mrs. Smith. See Lupberger, supra, , at p. 13, 805 So.2d at 272; Major, supra. Therefore, while we find that Dr. Smith has a claim against the community for reimbursement of the interest portion of the payments he made, i.e., he is entitled to recover one-half of same, Mrs. Smith is entitled to one-half of the tax deduction benefit he received on both the Valmont Street property and the Fourth Street property, which is

15 $38, In his third assignment of error, in his answer to the plaintiff s appeal, the defendant contends that the allocation of the community portion of the Louisiana Teachers Retirement Plan of appellee was contrary to law. The defendant s retirement plan is a defined benefit plan. The defendant argues that the trial court should have applied the formula set forth in the Louisiana Supreme Court case of Sims v. Sims, 358 So.2d 919 (La.1978), rather than modifying said formula as set forth in the trial court s judgment. But the defendant fails to explain how this Court should modify the judgment of the trial court in order to make it conform with Sims. In Sims, the Supreme Court declared that in a defined benefit pension plan, the spouse of the employee was entitled to have her interest in the pension benefits valued at the time the pension benefits became payable in proportion to how much was contributed during the community. Sims, 358 So.2d at p Moreover, in deciding this issue we are influenced by the later Supreme Court decision in Hare v. Hodgins, 586 So.2d 118 (La.1991). In Hare, the Supreme Court allowed for the possibility of a modification of the Sims formula, saying that: [T]here is no custom from which rules can be derived for each particular situation. Accordingly, in the present case and others a court a court is

16 bound to decide equitably to some extent, making resort to justice, reason and prevailing usages. La.Civ.Code art. 4. Hare, 586 So.2d at p In the instant case, the defendant contributed $5, per year to the plan until he decided to become a part-time employee, after which he contributed only $1, per year. Therefore, the trial court allocated only one-fifth of a year for each year of post-community service based on the ratio of $1, to $5,000.00, saying in the written reasons for judgment: A pure application of the Sims formula would allow Dr. Smith to dilute the community interest in his pension while not making any meaningful contribution. However, to reserve a determination on this asset until the pension matures, delays finality and inhibits the parties ability to make informed decisions regarding future conduct. Accordingly, the Court finds that the application of the Sims formula, modified by each postcommunity part-time year counting for 1/5 of a year, fairly and equitably partitions the LSU Retirement Plan. Based on the appeal to equity found in Hare in connection with defined benefit pension plans as reinforced by the great latitude afforded to the trial court in arriving at an equitable distribution of assets between the spouses as referred to throughout this opinion based on Lupberger, supra, and Major, supra, we find no error in the trial court s formula for the allocation of retirement benefits under the particular facts of the instant case.

17 For the foregoing reasons, we recognize Dr. Smith s claim against the community for interest expense in the sum of $137,485.00, plus $16, and hereby award him one-half of that amount subject to an offset in favor of Mrs. Smith in the sum of $38, as her one-half portion of the tax deduction that Dr. Smith received by claiming the entire benefit of the interest deduction on his tax return. Accordingly, the judgment of the trial court is affirmed as amended. AFFIRMED AS AMENDED