Saturday, October 29, 2011

Making a Capital Case Out of Things

Towslee v. Callanan, 2011 VT 106 (mem.).

Here is what I think happened in today’s case.  The parties briefed and argued the case in the fall of 2010.  The justices then took a vote on the outcome of the case.  A strong voice emerged and a majority was constituted.  One justice was assigned to draft the opinion and work began.  During this time one or more of the justices started having second thoughts.  Maybe those thoughts were there the day of the conference.  Maybe they began to emerge slowly as drafts of the opinion started to circulate between chambers.  However it occurred, the doubts built up steam, and before everyone knew it, three justices were aligned on the other side of the opinion, and the original majority was now the dissent. 

In this armchair speculation, I can imagine one or two justices switching back and forth keeping the opinions in flux, until the dust settled, and the opinion in its current form issued.  My guesswork is not plain speculation but is based on a few signs to be found in today’s opinion, which make it a particularly interesting one for SCOV watchers and students of the judicial process.  What struck me as so unusual or unsettled about this opinion can be broken into four observations that together paint a picture of a bench that was far from consensus during the deliberative drafting process. 

First, the decision took far longer than the average opinion to issue.  The average time between arguments and issuing has been about six months.  This case was briefed and argued over 12 months before the opinion issued.  While it is not unusual for the SCOV to take its time with a complex case or an issue of first impression, neither of these elements appear in this fairly straightforward divorce stipulation dispute.

Second, there are the lengthy footnotes.  While SCOV opinions regularly feature footnotes, this opinion has 19 of them, and nearly every one of them is addressed to rebuke a point raised by either the majority or the dissent. 

Third, the majority opinion is unsigned and somewhat stiff—as if it was written by several hands and re-drafted as coalitions shifted.  It reads like the author may be a little gun-shy of further debate and wants to contrast itself in measured, low-key tones to distinguish and raise itself from the boisterous dissent.

Fourth, you have the dissent.  Great dissents are often personal.  The dissenter has lost the fight for the majority.  She is writing separately to public air her disagreement in the hopes that future courts will buck the majority and change the direction of the law or others will take up the fight in new forums.  A jeremiad may be too strong a word, but the sense of the word fits the nature and tone of such a full-on dissent.  Justice Dooley’s dissent in this case is fully in line with such tradition and reflects a perceptible anger over a result he characterizes as “manifestly unfair.” 

So what is all the to-do about?  Principal, as it turns out.  Principal and interest and their relationship to a twelve-year old divorce order.  Let’s go to the facts for more.

Parties were divorced in 1997 and wrote up a stipulated divorce agreement.  Wife got to keep the house but was obligated to maintain it and pay the mortgage, which at the time stood at $87,000.  Parties never got an appraisal of the house at the time, but there was some indication that this amount represented close to the full value of the property.  Husband kept his name on the mortgage.  When the couple’s children were grown and out of the house, wife was obligated to sell the house and share the profits with husband 50/50 after she was reimbursed for her “Capital Contributions (mortgage).”

The entire case actually revolves around this last phrase.  In 2008 wife sold the property, and claimed all of the profit from the sale as part of her “Capital Contributions” because the amount was equal to or less than the amount of money she had paid on the mortgage.  Husband objected, and they went to court.  Husband argued and put his old attorney on the stand to testify that the language in the agreement was intended only to give wife a credit for the amount of “principal” on the mortgage that she paid.  The rest of the mortgage payment—the interest—was to be born by wife and should not be credited to her accounting after the sale.  Husband suggested that this was only fair because he had already paid her for these expenses as part of the monthly child support, which included a stipend for “housing.” 

For both the trial court and the SCOV the issue is one of contract interpretation.  The stipulation is treated as a contract between the parties, and the courts look to the agreement to interpret what the parties intended when they entered into the agreement.  To do this, the courts will look to the plain language of the agreement.  Unless the language is ambiguous, the courts will enforce the plain language of the agreement.  If the language is ambiguous, the courts will look to the parties’ circumstances at the time of formation and then to other “canons” of construction.  The latter are a set of somewhat arbitrary rules used by courts to divine meaning where meaning is not readily forthcoming. 

The trial court disagreed with husband’s interpretation.  It found that the language was ambiguous.  While the term “capital contribution” might mean principal, it is an awkward phrase and does not follow the usual terminology for such a condition.  The term “mortgage” which follows in parentheses, usually means both interest and principal.  Stuck with an ambiguous term, the trial court ruled against the drafter and granted wife’s request to deduct the full amount of her mortgage payments from the proceeds of the sale of the house, leaving husband with nothing.

On appeal, the majority affirms the trial court and its reasoning.  The majority notes that contracts are enforced against their drafters.  It also rejects husband’s attorney’s testimony about the intent.  For the majority, the message to husband is bad drafting, bad result.  The trial court is affirmed, and wife takes the proceeds from the house.

Enter the dissent, which opens with the earlier quoted “manifest injustice” salvo and continues to build.  For the dissent (Justice Dooley joined by Justice Skoglund), the majority’s mistake is a failure to look at the totality of the circumstances and the contract as a whole to establish ambiguity and the parties’ intent.  The language resolves to a plain meaning, and the intent is crystal clear.  The parties had one significant asset, their home.  Wife needed it for the foreseeable future for the children, but they agreed to sell it once the kids left home or wife.

To the dissent, the key is the intent to split the asset equally.  That means that whatever credit wife receives under the “capital contributions (mortgage)” term, it must be enough to give husband a portion of the asset—particularly since he received no other substantial assets and did not even have the benefit of occupying the house.. 

Looking at the language of the term, the dissent has no trouble interpreting it to mean exactly what husband and his attorney said it was—a principal-only term.  The key phrase is “capital contribution,” and the word mortgage in parentheses modifies this phrase.  This has a certain amount of logic.  When we add words in parentheses to phrases, we rarely intend them to control but to modify.  At the same time, this does not explain why husband did not simply say “wife can only deduct the principal portion of any mortgage payments” or something similar.

The dissent also notes that husband’s child support included money to cover their housing—although no amount within the payment was specifically set out as such.  The dissent states that this means that wife is getting a windfall.  She received monthly housing subsidies, and she got to keep all the equity in the house. 

Finally, the dissent makes much out of calculations that show that if the interest payments are included, husband could never have a chance to recover any portion of the equity from the house.  At annual rate of 4.2%, interest on the mortgage will always equal or out pace any growth in value—even in a robust real estate market.  This creates a situation where husband could never gain any equity because it would be consumed over time by the interest payments.  Such a self-inflicted wound strikes the dissent as absurd and frustrates the plain intent of the parties to give husband something of value at the sale of the house. 

As always, the dissent, while passionate, is a vote of short of making its opinion binding.  The underlying case is affirmed.  Wife gets the proceeds from the house, and husband gets the cold comfort of knowing that his plight resonated loud and clear to at least two Vermont Supreme Court justices.  

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