Shattuck v. Peck, 2013 VT
1
It is easy to think of marriage as a special status where
we, as a society, recognize the union of two lives into one and bestow benefits
upon that favored coupling. But closer
scrutiny (and a few years in family court) will show that marriage is part
benefit and part protection. Or as many
hung-over Vegas tourists have learned, marriage may be easy to enter, but it is
notoriously difficult to undo—celebrity
examples notwithstanding.
There is a reason for that.
For all of the ethereal talk of a marriage of true minds, marriage is also
a business proposition that is part securities merger and part contract. To that end, family court is the impediment
that the parties admit to ensure that any stock split is conducted in a fair
and equitable manner.
When we enter a marriage, we make common cause with
another. We mingle assets. We support the other and provide her with the
platform to earn or achieve. After some
time, it is difficult for the parties, let alone an outsider, to separate
assets and to identify mine from yours. And
to a certain extent, such questions are irrelevant. The question is what is fair and what will
allow each spouse to live at the same level of comfort he or she has come to
enjoy in the marriage.
This kind of thinking can drive clients nuts. What do
ya mean I have to support him while he raises the kids? But it is the function of marriage. Society will let you into this relationship
and will shower you with benefits, but if you decide to end it, there will be
scrutiny and a price. After all, if you
don’t take care of your ex, who will?
Such talk makes even the most romantic want to turn her wandering
bark away from the stars. Indeed, such
bitter divorces are often cited as exhibit A by the young couples who choose to
cohabit and mingle assets but staunchly refuse to seal the deal in front of the
man with a piece of paper.
Yet cases, like today’s, are prime examples of why marriage
remains an important institution vital not only to the health of society but
also as a bulwark to protect the partners of such a relationship.
All of which brings us to the present case in which neither
marriage nor divorce factor in one iota to the events befalling the former
couple, who have now become partners in litigation.
Let’s start at the top.
Plaintiff and Defendant lived together as a couple, for approximately
fifteen years. During that time, they
never married, but they did engage in several of the activities that are common
between spouses.
Sometime in the mid-1990s, Plaintiff moved into Defendant’s
mobile home in Springfield. Defendant
had purchased the property from her mother with a loan and a mortgage.
In the late 1990s, Plaintiff purchased two adjoining lots in
Cavendish, in his name. While Plaintiff
provided the bulk of the payment, Defendant contributed to this purchase.
In 2004, Plaintiff began building a home for the parties on
the Cavendish property. Plaintiff
provided most of the capital and the “sweat equity,” but Defendant contributed
to the process as well as the sweat and was a co-signer on the initial construction
loans and mortgages.
Two years later, the home was finished and the parties moved
into it. Plaintiff took out a final set
of loans to pay off the initial and intermediate construction loans as well as
$20,000 that remained due on the Springfield mobile home property. The resulting notes and mortgages were only
in Plaintiff’s name. Around this time, the
parties executed wills that named each other as primary beneficiaries.
So far, so good, it would seem, but during this time, the
parties were engaged in a concerted effort to strip away, at least on paper,
all of Defendant’s assets.
In 1999, Defendant was laid off from her job and began
receiving $700 a month in social security benefits. The parties mistakenly believed that as their
fortunes improved with the Cavendish property purchases, they had to keep the
assets away from Defendant or risk losing her federal benefits. It turns out that this was a completely mistaken
impression and a really bad decision. (In
fact, Defendant would later at trial try to argue that this was all Plaintiff’s
idea, but the evidence indicated that it was a mutual error attributable to
both parties.)
In pursuit of this idea, Defendant put the Springfield
property into Plaintiff’s name and did not sign or join onto any of the loans,
mortgages, or deeds executed for the Cavendish property. In fact, Defendant started to pay Plaintiff “rent”
of $600 to $700 per month in order to obtain a renter’s rebate.
Still, everything seemed to be going well until the summer
of 2010 when Plaintiff decided to end the relationship. Then things did not.
Defendant sought a relief from abuse order and had Plaintiff
kicked out of the Cavendish home.
Plaintiff responded with an action in ejectment to get Defendant out of
the house. Defendant counterclaimed that
the parties owned the property subject to a partnership agreement or a
constructive trust and demanded a dissolution and accounting.
This is what happens when parties who are trying to divorce
do not have the legal recourse of marriage.
They are forced to create legal fictions as vehicles to house what are
essentially domestic complaints. In this
case, it was somewhat absurd to allege that Plaintiff and Defendant were
engaged in a partnership arrangement.
They were in a marriage. Only
they never got married. What they were
doing has some of the earmarks of a trust but as we will see not enough to
cross the legal threshold and secure the legal protections of such an
instrument.
Following a two-day hearing, the trial court ruled that
there was no evidence that Plaintiff fraudulently induced Defendant to transfer
away all of her assets. This meant that
the court would not create a constructive trust to protect Defendant.
There was also no evidence of a partnership or a trust
between the parties. So the trial court
awarded all of the property to Plaintiff who was the owner of record for both
parcels.
On appeal Defendant’s sole argument was that the trial court
failed to recognize her equitable interest in the property. This was a tough position for Defendant to
try to argue on appeal. It required her
to persuade the SCOV that the trial court erred in its factual findings and
abused its discretion in failing to award her equitable relief. Both points have a high threshold and limited
scope of review on appeal.
To reverse the trial court on the issue of a constructive
trust, Defendant needed to persuade the SCOV that the trial court’s refusal was
“untenable” and the trial court withheld its discretion entirely. That is because the concept of a constructive
trust is broad and highly dependent on the circumstances.
The idea of a constructive trust is to prevent one party
from unfairly gaining from another party.
This is a concept known as unjust enrichment. For example if a wife murders her wealthy husband
and inherits his estate, the courts will prevent her from benefiting from her
criminal action and will hold the estate in a constructive trust for the next
closest relative.
Defendant tried to meet her burden and reverse the trial
court with two major arguments. First,
she argued that the gifts of property lacked a “donative intent.” In other words, she did not mean to give them
to Plaintiff, he was just holding them for her.
Second, she argued that the trial court’s judgment was unduly narrow and
ignored her substantial contributions to the property.
The SCOV seems, at first, to be receptive to this latter point
and cites favorable authority in support the principle that a constructive
trust is warranted where a legal distribution would ignore the substantial
contributions by a party. But this
musing is short lived as the SCOV quickly notes that equity requires clean
hands by the party seeking such relief.
In this case, the SCOV notes, Defendant got into this mess
because she was trying to defraud the federal government. This is practically a textbook definition of
unclean hands. If your fellow robber
cheats you while divvying up the loot, you cannot seek recourse from the
courts.
The problem here and what fuels much of the dissent is that
despite the parties’ nefarious intentions, they were actually not doing
anything illegal and none of their steps constituted fraud. Defendant would have maintained her
eligibility whether she had the assets or not.
If she had not tried to shield them, she still would have been eligible
for the same amount of benefits that she received. In essence, it would seem to be a case of no
harm, no foul.
The majority does not see it that way, and it goes to some
lengths to defend its decision. It does
not matter whether the parties were acting illegally. They thought they were and acted in a manner
consistent with a plan to defraud. The
SCOV will not overlook incompetence or allow such to be an excuse. The intent to defraud is enough to cause
Defendant to forfeit her claims for equity.
In essence, the majority is saying, you would not be in this
mess but for your greed, and we will not let your ignorance save you.
With that the majority affirms the trial court and sends
Defendant off to look for a new home.
Justice Robinson is the lone dissenter from the majority on
this issue of unclean hands (she has had a number of these solo dissents this
term). For the dissent, the issue of
equity is too important to be waived away with an imaginary bad act. The dissent argues that short of actual
defrauding or criminal activity, intent is not enough to void equitable
relief. In support of her position, the
dissent cites and discusses a number of cases from different jurisdictions
where the courts have not waived equity where intended bad actions have fallen
far short of their nefarious intent.
For the dissent, the overriding idea of equity compels this
analysis and the unclean hands and narrow application of equity by the trial
court is too stingy. The dissent’s
position is that this was for all intents and purposes a marriage and the
courts should be treating it like one rather than as an arms-length business
transaction.
The dissent’s point is that we need to have greater
flexibility in these situations to recognize the different relationships at
play and the nature that couples will, for good and bad reasons, co-mingle
funds and allow one spouse to hold all of the family jewels.
But at one vote, the dissent stands alone and its analysis,
while well-wrought, was clearly not persuasive to the remainder of the SCOV. One reason may be the radical flexibility that
is implicit within the dissent’s position.
The dissent is essentially seeking to import some of the flexible and
equitable concepts from family into the present civil dispute. This makes sense because this is essentially
a divorce case.
At the same time, it is not a divorce case, and the
importation of such concepts is offensive to the standards of a civil claim and
the limited equity it offers. After all,
if the parties really wanted the flexibility and scrutiny of family court, they
could have just gotten married.
The majority appears to buy into the idea that the dissent’s
arguments are a bridge too far and bring family law into circumstances where
the parties have not availed themselves of it.
As a result, the dissent’s reasoning and outcome are largely rejected,
and the more restrictive unclean hands analysis prevails.
Evil-doers, beware!
Get married first.
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