Linda Davis v. Karen Davis ( 2016 )

RENDERED: FEBRUARY 18, 2016
TO BE PUBLISHED
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2014-SC-000751-DG
LINDA DAVIS APPELLANT
ON REVIEW FROM COURT OF APPEALS
V. CASE NO. 2012-CA-002084-MR
GREENUP CIRCUIT COURT NO. 11-CI-00749
KAREN DAVIS and APPELLEES
ESTATE OF MATTHEW DAVIS
OPINION OF THE COURT BY JUSTICE CUNNINGHAM
REVERSING AND REMANDING
Appellant, Linda Davis ("Linda") married Matthew Davis ("Matthew"), in
1981. On May 23, 2003, Linda and Matthew executed a property settlement
agreement (the "Agreement"). Therein, the parties expressed their desire that
the Agreement "be incorporated into and made a part of any final decree which
may be entered herein . . . ." In addition to many other provisions dividing
property, the Agreement specifically provided that "[Matthew] agrees to
maintain his policy of life insurance with Monumental Life Insurance Company
in the total amount of $100,000.00 and will keep [Linda] as the beneficiary."
On May 27, 2003, the Wayne Circuit Court entered a final decree
dissolving their marriage. Although the decree of dissolution acknowledged
that the parties had settled their property claims, it failed to incorporate the
Agreement. This omission went unnoticed until after Matthew died in July
2011. Six weeks prior to his death, Matthew changed the beneficiary on his
Monumental Policy, which was in force since 1997, to his then-wife of two
years, the Appellee, Karen Davis ("Karen").
When Linda learned of Matthew's death, she filed a proof of claim against
his estate premised upon a breach of the Agreement. Karen, as executrix of
Matthew's estate, denied Linda's claim, and subsequently filed this action in
Greenup Circuit Court against Monumental Life Insurance Company for the
policy proceeds. Linda intervened in this action as a third party plaintiff to file
a competing claim to those life insurance proceeds and to add Matthew's estate
as a third party defendant.
The Greenup Circuit Court concluded that absent compliance with KRS
403.180, a separation agreement is rendered unenforceable. The Court of
Appeals agreed and held that KRS 403.180(4) essentially ( voided the Agreement
because marital dissolution is controlled by statute. The court specifically
opined that "KRS 403.180 . . . is the only source of Linda's right to make a
separation agreement with Matthew." 1 Having reviewed the record and the law,
we reverse the Court of Appeals and remand this case to the trial court.
Preliminary Issues
Appellees raise several procedural matters that must be addressed before
reaching the merits of this case. Appellees maintain that Linda's notice of
1 A separate Court of Appeals panel also affirmed the Wayne Family
Court's denial of Linda's motion to revive the divorce action and her motion for entry of
a decree of dissolution nunc pro tunc. That determination is now binding. See Davis
v. Davis, No. 2012-CA-001243-MR, 2013 WL 2450204 (Ky. App. June 7, 2013), review
denied, (April 9, 2014).
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appeal was deficient and that the appeal should either be dismissed or limited
to certain issues. Appellees raised these same or similar claims before the
Court of Appeals in a motion to dismiss. Davis v. Davis, No. 2012-CA-002084-
MR, (Ky. App. November 26, 2014). The Court of Appeals denied Appellees'
motion and determined that Linda's notice of appeal related forward to the
order that made the litigation final. Id. citing Johnson v. Smith, 885 S.W.2d
944, 949 (Ky. 1994). See also CR 73.03. The court also concluded that
Appellees failed to demonstrate any substantial harm or prejudice that resulted
from the alleged errors. The court denied Appellees' motion and proceeded to
the merits of the case. We agree with that decision and the reasons in support
thereof. The same resolution is warranted here.
Appellees further contend that dismissal is required because Linda failed
to timely file her brief in the Court of Appeals. However, Appellees have not
indicated that they raised this alleged error in the Court of Appeals nor have
they demonstrated any substantial harm or prejudice that resulted therefrom.
Therefore, we will proceed to the merits.
Analysis
KRS 403.180 governs the enforceability of written separation
agreements. Property disposition provisions contained in such agreements are
binding upon the court unless they are unconscionable. KRS 403.180(1) and
(2). Section 4 of that statute states in pertinent part as follows:
(4) If the court finds that the separation agreement is not
unconscionable as to support, maintenance, and property:
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(a) Unless the separation agreement provides to the contrary,
its terms shall be set forth verbatim or incorporated by
reference in the decree of dissolution or legal separation and
the parties shall be ordered to perform them; or
(b) If the separation agreement provides that its terms shall
not be set forth in the decree, the decree shall identify the
separation agreement and state that the court has found the
terms not unconscionable.
It is undisputed that the requirements of Section 4 were not satisfied here.
Therefore, the Agreement cannot be enforced as a judgment by the family
court. The issue is whether Linda may nevertheless maintain a common law
contract claim in order to enforce the Agreement; or, whether failure to
incorporate or reference the Agreement in the decree of dissolution rendered
the Agreement void.
Contract Action
Kentucky has a long history of enforcing contracts between spouses. In
Smith v. Hughes for example, our predecessor Court held that wives possessed
"the right to contract with their husbands, [and] to sue them on such contracts
. . . ." 167 S.W.2d 847, 851 (Ky. 1942). Similarly, the Court held in Campbell
v. Campbell that a husband and wife "could enter into a valid postnuptial
contract wherein each relinquished his or her respective interest in the
property of the other, if such an agreement was fair and equitable, and
supported by an adequate consideration." 377 S.W.2d 93, 94 (Ky. 1964).
Appellees have failed to persuade this Court that contracts disposing of
property, which are executed in contemplation of dissolution of marriage,
constitute an exception to this general rule. The enactment of KRS 403.180 in
1972 does not alter this conclusion. In fact, it fortifies our decision.
KRS 403.180 discusses whether a settlement agreement is enforceable as
a judgment. However, KRS 403.180 does not automatically void settlement
agreements which are improperly referenced or are not incorporated into the
final decree of dissolution; nor does such a failure to comply with KRS 403.180
render a prior or contemporaneous property settlement agreement
unenforceable. Cf. Annechino v. Joire, 946 A.2d 121, 122 (Pa. Super Ct. 2008)
(holding that the trial court had authority to enforce a marital property
settlement agreement that had not been incorporated into the parties' final
divorce decree). Although the Annechino court had the benefit of a
Pennsylvania statue that expressly permitted enforcement of an
unincorporated agreement, the absence of such a statutory provision permitting
enforcement by the Kentucky Family Court does not imply a provision
forbidding enforcement of the agreement by a Kentucky court of general
jurisdiction. See Carter v. Carter, 382 S.W.2d 400, 401 (Ky. 1964) ("divorce
proceedings are equitable actions in this state [] and equity is broader than the
statute"), superseded on other grounds in Neidlinger v. Neidlinger, 52 S.W.3d
513 (Ky. 2001).
Furthermore, we acknowledge that KRS 403.180 was designed to protect
parties "from their own irresponsible agreements[,]" primarily those agreements
that are unconscionable. Shraberg v. Shraberg, 939 S.W.2d 330, 333 (Ky.
1997). However, this does not foreclose a separate contract action to enforce a
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valid settlement agreement that was not incorporated or referenced in the final
decree of dissolution. This logic is echoed in a leading Kentucky treatise:
Although separation agreements not involving legal separation are
enforceable as contracts, they are not enforceable as judgments
because they do not involve a court decree. Separation agreements
enforceable only as contracts are not entitled to full faith and
credit in sister states. Further, contempt remedies are not
available because only a judgment may be enforced by contempt.
15 Ky. Prac. Domestic Relations L. § 9:6 (citations omitted). See
also 16 Ky. Prac. Domestic Relations L. § 17:3 ("a circuit court may
enter a final decree dissolving the parties' marriage before resolving
property or support questions.") (citation omitted).
Therefore, KRS 403.180 does not automatically foreclose post-decree
dispositions or independent enforcement of property agreements not
incorporated or referenced in the decree. Several other jurisdictions have also
determined that separation agreements may be enforced as independent
contract actions.
For example, in Dion v. Dion, a federal court applying Pennsylvania law
observed that "a separation agreement for support which has not been merged
into a divorce decree or support order creates a contractual obligation to
provide support which is independent of any support obligation imposed under
principles of domestic relations law." 652 F. Supp. 1151, 1154 (E.D. Pa. 1987)
(citation omitted). In Bradley v. Bradley, the court observed that "contractual
maintenance arises where the maintenance provisions are agreed to by the
parties in the separation agreement and are agreed not to be incorporated into
the terms of the court's decree." 880 S.W.2d 376, 378 (Mo. App. 1994) (citation
omitted). As such, the court concluded that "[c]ontractual maintenance is
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enforceable by a separate action for breach of contract and it is not modifiable
by the court." Id. See also Cramer v. Hirsch, 470 N.E.2d 803, 804 (Mass. App.
Ct. 1984); and Mendelson v. Mendelson, 173 N.E. 615, 616 (Ohio 1930).
Having considered the relevant authority, we hold that a settlement
agreement involving property division that was not incorporated or referenced
in the final decree of dissolution may be enforced through an independent
contract action. Our holding does not apply to agreements executed prior to or
contemporaneously with an agreement that has been duly incorporated or
referenced in a dissolution decree. In such cases, the agreement that is
properly incorporated or referenced in the decree controls. Such language in
effect becomes part of the final judgment.
Nor does our holding apply to \settlement agreements that are made in
anticipation of dissolution of marriage but, where the divorce is never
consummated. As previously stated, the agreement at issue in this case
included the expressed intent of the parties that the Agreement "be
incorporated into and made a part of any final decree which may be entered
herein . . . ." Where it is evident that divorce is anticipated by the agreement,
enforcement of the agreement becomes conditioned upon the divorce being
completed in the action that is pending. 17A C.J.S. Contracts § 446. Many
divorce actions are filed along with separation agreements and the parties
either reconcile or dismiss the action without a final judgment of divorce. A
party or parties may also die before the divorce is obtained. See Rhodes v.
Pederson, 229 S.W.3d 62 (Ky. App. 2007). Thus, a separation agreement in
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those instances would be unenforceable due to the failure to fulfill a condition
upon which the agreement was premised--i.e. finalizing the divorce. See 17A
C.J.S. Contracts § 451.
In the present case, however, the divorce was finalized by the dissolution
decree. Accordingly, Linda may bring her contract claim and the respective
defendants may raise all applicable defenses, including unconscionability. If
the trial court determines that the Agreement is valid, enforceable, and that its
terms have been breached, Linda may recover damages. To clarify, the
distinction here is that the circuit court must consider all elements of a
contract claim and all applicable defenses, whereas the family court would only
consider the conscionability of the agreement had it been duly incorporated
into the decree.
Equitable Claims
Linda also contends that the Court of Appeals erred in affirming the trial
court's denial of her claims for unjust enrichment and her request for the
imposition for a constructive trust over the insurance policy proceeds. Having
determined that Linda is entitled to pursue a claim under common law
contract principles, it logically follows that she also be entitled to pursue all
equitable claims and remedies available at common law. This includes a claim
for unjust enrichment and the imposition of a constructive trust. See Sims v.
Sims, 348 S.E.2d 835, 836 (S.C. 1986) (permitting independent action by
former husband seeking a constructive trust arising from the alleged breach of
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a property agreement that was not incorporated in the divorce decree). See
also, Rose v. Ackerson, 374 S.W.3d 339 (Ky. App. 2012).
We also note that "despite cases to the contrary . . . Kentucky courts
have required the party seeking the imposition of a trust to establish a
``confidential relationship' with the party upon whom the trust is to be
imposed."' Keeney v. Keeney, 223 S.W.3d 843, 849 (Ky. App. 2007) (citing
Panke v. Panke, 252 S.W.2d 909, 911 (Ky. 1952)). "Where it is deemed
necessary, however, ``[t]he existence of the relationship in any particular case is
to be determined by the facts established."' Id. at 849-50 (citing Henkin, Inc. v.
Berea Bank & Trust Co., 566 S.W.2d 420, 423 (Ky. App. 1978)). With these
considerations in mind, Linda may pursue her equitable claims upon remand.
Furthermore, the fact that Karen has not been named as a defendant in
the Greenup County action is of no consequence. Karen is the plaintiff in that
case and Linda is an intervening and third party plaintiff. Karen has filed an
Answer in response to Linda's Intervening Complaint. Also, while not expressly
alleging unjust enrichment or requesting the imposition of a constructive trust,
Linda's Complaint alleges fraud and repeatedly requests that the transfer of
any life insurance proceeds be set aside, along with any change of beneficiary.
In any event, "[a] party's failure to assert the existence of unjust enrichment
does not serve to make it nonexistent." Rose, 374 S.W.3d at 343. "As long as
the trial court determines that the elements are present, it is not precluded
from making the legal conclusion that unjust enrichment exists." Id.
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Conclusion
For the forgoing reasons, we reverse the Court of Appeals and remand
this case to the trial court for further proceedings consistent with this opinion.
All sitting. All concur.
COUNSEL FOR APPELLANT:
Donald Bruce Orwin
COUNSEL FOR APPELLEES:
John Fredrick Vincent
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