Julio Fernando Cabral v. Debbie Ann Silveira Cabral ( 2013 )

COURT OF APPEALS OF VIRGINIA
Present: Chief Judge Felton, Judge Kelsey and Senior Judge Bumgardner
Argued at Richmond, Virginia
PUBLISHED
JULIO FERNANDO CABRAL
v. Record No. 0694-13-1
DEBBIE ANN SILVEIRA CABRAL
OPINION BY
DEBBIE ANN SILVEIRA CABRAL JUDGE D. ARTHUR KELSEY
DECEMBER 10, 2013
v. Record No. 0713-13-1
JULIO FERNANDO CABRAL
FROM THE CIRCUIT COURT OF THE CITY OF VIRGINIA BEACH
H. Thomas Padrick, Jr., Judge
Kevin E. Martingayle (Bischoff Martingayle, P.C., on
briefs), for Julio Fernando Cabral.
Christy L. Murphy (James A. Evans; Kaufman &
Canoles, P.C.; Evans & Bryant, PLC, on briefs), for
Debbie Ann Silveira Cabral.
In these consolidated appeals, Julio Fernando Cabral contends the trial court erred by
reopening a divorce case that had been closed since 2009 and by making an equitable
distribution award and an award of attorney fees to his former wife, Debbie Ann Silveira Cabral.
She also appeals, claiming the trial court erred by undervaluing a disputed asset and by awarding
some, but not all, of her attorney fees. Because the trial court erred by reopening the case in the
first place, we reverse the awards of equitable distribution and attorney fees.
I.
After thirteen years of marriage and two children, Julio and Debbie Cabral filed for
divorce in 2007. Represented by experienced counsel, the parties entered into a “Final and
Permanent Separation, Custody, Support and Property Settlement Agreement” that resolved all
contested issues in the case. The trial court entered a final decree in 2009 that ratified,
confirmed, and incorporated by reference, but did not merge, the settlement agreement. The
preamble of the seventeen-page agreement states its intent, among other things, to “fully satisfy
all obligations which each of the parties now has or might hereafter have toward the other” and
“to finally determine and settle their property rights” arising out of the marriage. App. at 24.
The settlement agreement thereafter divides between the parties a considerable number of
assets, including the marital home, a beach house, two undeveloped lots in Williamsburg, a
condo in Portugal, property in the Azores, and equity interests in several businesses. Based upon
this agreed division of assets, both parties agreed to “waive any right or entitlement to seek an
award of equitable distribution from the other.” Id. at 30-31.
Immediately following this waiver, however, is a curious caveat: “The parties
acknowledge that all assets have been disclosed and they are referred to in this Agreement. Any
undisclosed or omitted assets shall be subject to an equitable distribution hearing and this matter
may be reopened as to such property.” Id. at 31. The agreement also includes a provision
awarding attorney fees to the prevailing party under certain conditions in later litigation arising
out of the agreement.
The trial court reopened the proceeding in 2010 at the request of Debbie Cabral, who
sought to enforce various provisions of the settlement agreement. While the matter remained on
the court’s docket, Debbie Cabral filed a “Motion for Equitable Distribution.” R. at 294.1 She
claimed her former husband committed “multiple fraudulent misrepresentations” and failed to
disclose an asset during the negotiations preceding the settlement agreement. Id. “In fact,” she
1
The parties failed to include the “Motion for Equitable Distribution” in the joint
appendix. See Rule 5A:25(c)(1) (requiring the appendix to include “the basic initial pleading”);
Rule 5A:25(h) (noting the assumption “that the appendix contains everything germane to the
assignments of error”). We nonetheless take note of the motion under our authority to review the
entire record, not just the portion included in the joint appendix. See Rule 5A:25(h).
-2-
alleged, “Husband lied during the divorce litigation in an attempt to hide the undisclosed asset.”
Id. at 295. The asset Julio Cabral allegedly failed to disclose was a $1.85 million “account
receivable” owned by Sunset Development, LLC, a real estate holding company in which he had
a 50% interest. Id. The account receivable was created when the company loaned $1.85 million
to another member who owned the remaining 50% interest.
In 2011, the trial court entered an order specifically reinstating the case to the docket to
address the equitable distribution motion. At the hearing on the motion, Debbie Cabral’s counsel
withdrew the allegation of fraud and argued instead that, even if non-fraudulent, Julio Cabral’s
failure to disclose the account receivable triggered the settlement agreement’s provision
authorizing the trial court to reopen the case for equitable distribution of the asset.
In response, Julio Cabral argued that he merely owned a 50% interest in Sunset
Development, LLC. He had no ownership interest in the account receivable owned by the
company, and thus, as a matter of law, it could not be considered a marital asset subject to
equitable distribution. Even if it could be considered a marital asset, he continued, the court had
no authority to reopen the case to distribute the asset because the divorce decree ending the case
had long since become final under Rule 1:1.
The trial court agreed with Debbie Cabral, reasoning that “it didn’t really matter per se
whether it was an LLC or a corporation or a sole proprietorship. It’s still a marital asset because
people accumulate wealth, and they put that wealth in different entities.” App. at 431. Based
upon this reasoning, the court held that Julio Cabral failed to “disclose a marital asset, to wit: an
account receivable . . . owned by Sunset Development, LLC, of which entity [Julio Cabral]
owned 50% at the time of the parties’ divorce.” Id. at 439. That conclusion, the court added,
made the “account receivable of Sunset Development, LLC” subject to equitable distribution.
Id.; see also id. at 2019 (describing the asset as “an account receivable of Sunset Development,
-3-
LLC”). After hearing evidence on valuation, the court made an “equitable distribution award” of
$329,000 to Debbie Cabral. Id. at 2020. The court also awarded her $60,000 in attorney fees,
id., based upon a provision in the settlement agreement authorizing an award of attorney fees to
the prevailing party in further litigation of the agreement.
II.
Both parties appealed the trial court’s final order. Julio Cabral challenges both the trial
court’s equitable distribution award and the award of attorney fees. He contends the trial court
violated Rule 1:1 and thereby acted outside its subject-matter jurisdiction, misinterpreted the
language of the settlement agreement, established an incorrect valuation date, and misvalued and
erroneously distributed the asset. Debbie Cabral appeals her equitable distribution award and her
award of attorney fees, claiming the trial court in both instances awarded less than what she was
entitled to receive.
While each of these arguments implicates a cascading series of issues, we find one line of
reasoning to be dispositive: Because Sunset’s account receivable was not a marital asset, it was
not subject to equitable distribution. The trial court erred in concluding otherwise, and, by doing
so, it acted outside its lawful authority. It necessarily follows that the court likewise erred in
making an award of attorney fees to Debbie Cabral.
A. RULE 1:1 & SUBJECT-MATTER JURISDICTION
With certain exceptions not relevant here, Rule 1:1 provides that such orders “shall
remain under the control of the trial court and subject to be modified, vacated, or suspended for
twenty-one days after the date of entry, and no longer.” This rule governs final divorce decrees
no less than any other final order of the circuit court. See, e.g., Rook v. Rook, 233 Va. 92, 95,
353 S.E.2d 756, 758 (1987); Zhou v. Zhou, 38 Va. App. 126, 132, 562 S.E.2d 336, 339 (2002).
-4-
Though sometimes called a limitation on “subject matter jurisdiction,” Kelley v. Stamos,
285 Va. 68, 79, 737 S.E.2d 218, 224 (2013), Rule 1:1 serves only as a mandatory procedural
precondition to the trial court’s lawful exercise of its authority.2 In Virginia, procedural rules of
court are solely the pronouncements of the judiciary. See Va. Const. art. VI, § 5 (authorizing the
Virginia Supreme Court to promulgate rules of practice and procedure); Code §§ 8.01-3,
16.1-69.32, 17.1-403, 17.1-503. Judicially created procedural rules cannot expand or contract
the subject-matter jurisdiction of the courts.
Subject-matter jurisdiction is about power, not simply the proper use of it. Courts are not
self-conceived and, thus, do not create their own judicial power. Only the Constitution and the
legislature can do that. See Va. Const. art. VI, § 1 (providing that, subject to constitutional
limits, “the General Assembly shall have the power to determine the original and appellate
jurisdiction of the courts of the Commonwealth”); see also Bd. of Supervisors v. Bd. of Zoning
Appeals, 271 Va. 336, 344, 626 S.E.2d 374, 379 (2006); Shelton v. Sydnor, 126 Va. 625, 629,
102 S.E. 83, 85 (1920); Swalef v. Anderson, 50 Va. App. 100, 106 n.4, 646 S.E.2d 458, 461 n.4
(2007). Nor can courts claim they are powerless to exercise judicial power properly delegated to
them. Because the very “existence of the jurisdiction creates an implication of duty to exercise
it,” Howlett v. Rose, 496 U.S. 356, 373 (1990) (internal quotation marks omitted), courts have a
“strict duty to exercise the jurisdiction” conferred upon them, Quackenbush v. Allstate Ins. Co.,
517 U.S. 706, 716 (1996), unless extraordinary circumstances warrant otherwise.
2
Although the nomenclature adds little clarity, sometimes mandatory procedural
preconditions in the Rules are said to implicate a court’s “active jurisdiction,” Davis v.
Commonwealth, 282 Va. 339, 339, 717 S.E.2d 796, 796-97 (2011), which, we believe, should be
distinguished from “subject-matter” jurisdiction, Whitt v. Commonwealth, 61 Va. App. 637, 649,
739 S.E.2d 254, 260 (2013) (en banc). Violations of rule-based preconditions in the active
jurisdiction category rarely cause an order to be deemed void ab initio; violations in the subject-
matter jurisdiction category always do. Given our holding, however, we need not tease out of
the precedents a single, unifying vocabulary for these often confused concepts.
-5-
It is true that we treat orders in violation of Rule 1:1 as “void ab initio.” Burrell v.
Commonwealth, 283 Va. 474, 480, 722 S.E.2d 272, 275 (2012). We do so not because the court
issuing the order acted outside its subject-matter jurisdiction but because “the mode of procedure
used by the court was one that the court ‘could not lawfully adopt.’” Kelley, 285 Va. at 75, 737
S.E.2d at 222 (quoting Singh v. Mooney, 261 Va. 48, 51-52, 541 S.E.2d 549, 551 (2001)). This
is simply another way of saying that, at some point, an unlawful exercise of judicial power
becomes so palpable that it can be considered void ab initio and challenged by anybody in any
forum at any time.3 While very few judicial orders deserve this disapprobation, a violation of
Rule 1:1 is one of them.
B. RULE 1:1 & EQUITABLE DISTRIBUTION
Even these distinctions are swept aside, however, when the legislature enacts specific
exceptions to the mandatory application of Rule 1:1. Code § 20-107.3(K) specifically authorizes
divorce courts to exercise their “continuing authority and jurisdiction” to do certain things even
after the expiration of Rule 1:1’s twenty-one-day deadline. The statute exempts from Rule 1:1
“any additional orders necessary to effectuate and enforce” any previous equitable distribution
order entered pursuant to Code § 20-107.3.4 As examples, the statute gives four scenarios in
which continuing authority and jurisdiction would be appropriate.
3
Examples include orders entered against parties outside the personal jurisdiction of the
court, see, e.g., Slaughter v. Commonwealth, 222 Va. 787, 791, 284 S.E.2d 824, 826 (1981), and
orders procured by extrinsic fraud, see, e.g., Jones v. Willard, 224 Va. 602, 607, 299 S.E.2d 504,
508 (1983). See also Evans v. Smyth-Wythe Airport Comm’n, 255 Va. 69, 73, 495 S.E.2d 825,
828 (1998); Wright v. Commonwealth, 52 Va. App. 690, 704, 667 S.E.2d 787, 793 (2008) (en
banc).
4
Paragraph 35 of the settlement agreement acknowledges the role that Code
§ 20-107.3(K) generally plays in the trial court’s continuing post-Rule 1:1 authority over the
divorce proceedings. App. at 33-34.
-6-
In this case, Julio Cabral argues that neither the general language of Code § 20-107.3(K)
nor any of the four examples apply to this case. He asserts two different, but related, reasons.
First, he contends the settlement agreement applies only to assets owned by the parties subject to
equitable distribution — not to assets owned by a separate legal entity that, as a matter of law,
are not subject to equitable distribution. Second, he argues that the agreement, if given the
interpretation adopted by the trial court, would fall outside the scope of Code § 20-107.3(K) in
any event. Because we find his first point persuasive, we need not address his second.
(i)
Except for the special rules governing child custody and support issues, see Kelley v.
Kelley, 248 Va. 295, 299, 449 S.E.2d 55, 57 (1994); Verrocchio v. Verrocchio, 16 Va. App. 314,
317, 429 S.E.2d 482, 484 (1993), general principles of contract law govern the interpretation of
settlement agreements in divorce cases, see Bailey v. Bailey, 54 Va. App. 209, 215, 677 S.E.2d
56, 59 (2009) (applying “the same rules of construction and interpretation applicable to contracts
generally” (internal quotation marks omitted)). And the nature of the interpretative task does not
change merely because the trial court incorporates the agreement by reference into a final decree.
See Newman v. Newman, 42 Va. App. 557, 563, 593 S.E.2d 533, 536 (2004) (en banc).5
5
Under Code § 20-109.1, a court may “affirm, ratify and incorporate by reference” a
property settlement agreement into a final divorce decree. The agreement thereafter “shall be
deemed for all purposes to be a term of the decree, and enforceable in the same manner as any
provision of such decree.” Id. An agreement incorporated by, but not merged into, a divorce
decree may also be enforced under contract law and, if appropriate, warrant an award of specific
performance or monetary relief. Rubio v. Rubio, 36 Va. App. 248, 253, 549 S.E.2d 610, 612-13
(2001) (en banc); Hering v. Hering, 33 Va. App. 368, 373-74, 533 S.E.2d 631, 634 (2000).
Though this potential remedy existed in this case, Debbie Cabral did not pursue it. She instead
requested only that the court exercise its equitable distribution power, which is purely a creature
of statute and can only be exercised by courts presiding over divorce cases pursuant to Code
§ 20-107.3.
-7-
In Virginia, “[i]t is axiomatic that when the terms in a contract are clear and
unambiguous, the contract is construed according to its plain meaning.” TravCo Ins. Co. v.
Ward, 284 Va. 547, 552, 736 S.E.2d 321, 325 (2012) (internal quotation marks omitted).
“‘Words that the parties used are normally given their usual, ordinary, and popular meaning.’”
Id. (quoting City of Chesapeake v. States Self-Insurers Risk Retention Grp., 271 Va. 574, 578,
628 S.E.2d 539, 541 (2006)). That meaning, of course, derives from the text as well as the
context of the agreement.
Thus, “when considering the meaning of any part of a contract, we will construe the
contract as a whole,” Doctors Co. v. Women’s Healthcare Assocs., 285 Va. 566, 572, 740 S.E.2d
523, 526 (2013) (internal quotation marks omitted), and strive not to “place emphasis on isolated
terms” wrenched from the larger contractual context, Quadros & Assocs. v. City of Hampton,
268 Va. 50, 54, 597 S.E.2d 90, 93 (2004). Put another way, “[t]he contract must be read as a
single document. Its meaning is to be gathered from all its associated parts assembled as the
unitary expression of the agreement of the parties.” Hale v. Hale, 42 Va. App. 27, 31, 590
S.E.2d 66, 68 (2003) (quoting Berry v. Klinger, 225 Va. 201, 208, 300 S.E.2d 792, 796 (1983)).
(ii)
Guided by these principles, we turn to the disputed provision of the settlement agreement.
Paragraph 24, entitled “EQUITABLE DISTRIBUTION,” states in full:
Except as provided herein, the parties waive any right or
entitlement to seek an award of equitable distribution from the
other. The parties acknowledge that all assets have been disclosed
and they are referred to in this Agreement. Any undisclosed or
omitted assets shall be subject to an equitable distribution hearing
and this matter may be reopened as to such property.
App. at 30-31. The specific words in contest are “undisclosed or omitted assets.” Id. at 31. The
trial court interpreted this phrase to include assets not owned by either party but assets owned by
-8-
a company in which either party had an equity interest. Reviewing this holding de novo,6 we
disagree.
It is true that the word “assets,” if plucked out of a dictionary, could mean anything
owned by anyone. But here the word appears in a sentence referring to assets that are “subject”
to equitable distribution. Id. That sentence appears in a contractual provision entitled
“EQUITABLE DISTRIBUTION,” id. at 30, and that provision appears in an agreement entered
into by divorcing parties seeking to settle their respective property rights arising out of a
dissolving marriage. In context, the word “assets” plainly means assets owned by the parties,
because only marital assets owned by the parties are subject to equitable distribution.7
The allegedly undisclosed asset in this case, an account receivable owned by a company
in which Julio Cabral had a 50% interest, was never subject to equitable distribution.8 The trial
court could not have awarded the account receivable, or any part of it, to either party if the case
had not been settled. Nor could the court acquire the power to do so because of the settlement
agreement. Thus, the account receivable could not be an “undisclosed or omitted” asset that
6
“Absent the necessity to consider extrinsic evidence, ‘appellate courts review trial court
interpretations of contractual texts de novo because we have an equal opportunity to consider the
words within the four corners of the disputed provision.’” Vilseck v. Vilseck, 45 Va. App. 581,
588 n.3, 612 S.E.2d 746, 749 n.3 (2005) (quoting Smith v. Smith, 43 Va. App. 279, 288 n.2, 597
S.E.2d 250, 255 n.2 (2004)). This standard of review governs even in cases in which the trial
court incorporates by reference, but does not merge, the agreement into its final decree. In such
cases, we set aside the related (but inapplicable) principle that, “when construing a lower court’s
order, a reviewing court should give deference to the interpretation adopted by the lower court.”
Albert v. Albert, 38 Va. App. 284, 298, 563 S.E.2d 389, 396 (2002) (internal quotation marks
omitted).
7
In so ruling, we imply no disparagement of the legal craftsmanship of the settlement
agreement. It was drafted by experienced counsel and thoroughly addressed the many points of
disagreement that arose during the divorce proceeding.
8
See 1 Brett Turner, Equitable Distribution of Property § 5:51, at 531 (3d ed. 2005)
(“Property which is owned by third parties, including a corporation owned entirely by the parties,
is generally not marital property subject to equitable distribution.”); see also Turner, supra
§ 5:16, at 309.
-9-
could be the subject of “an equitable distribution hearing” in a “reopened” divorce case. Id. at
31.9
Julio Cabral’s interest in Sunset Development, LLC, no doubt constituted an asset under
paragraph 24 of the settlement agreement. But this asset was expressly disclosed in another
provision of the agreement. Paragraph 12, entitled “BUSINESS ENTITIES,” identified his
ownership “interest” in various businesses, including Sunset Development, LLC, and noted that
Debbie Cabral “waive[d] any right or interest she may have in each of said entities.” Id. at 28.
Julio Cabral’s equity interest in this company, therefore, could not be the subject of paragraph
24’s attempt to provide for post-agreement equitable distribution. It necessarily follows that the
final divorce decree remained subject to Rule 1:1 and was not subject to Code § 20-107.3(K)’s
continuing authority to enter “additional orders necessary to effectuate and enforce” the final
divorce decree’s incorporation by reference of the settlement agreement.
C. AWARD OF ATTORNEY FEES
The trial court awarded attorney fees to Debbie Cabral pursuant to a provision in the
settlement agreement authorizing the recovery of attorney fees for the prevailing party in various
circumstances. See id. ¶ 27, at 31. The parties dispute the scope of this provision and whether
the trial court properly applied it. We need not resolve this dispute, however, because Debbie
Cabral should not have prevailed in the trial court and, thus, should not have been awarded
prevailing party attorney fees.
9
It appears the trial court intuitively came to the same conclusion in its valuation
analysis. It focused on the value of Julio Cabral’s interest in Sunset Development, LLC, rather
than limiting the analysis solely to the company’s account receivable. App. at 2020 (stating the
$329,000 award represented Debbie Cabral’s “additional marital share of Sunset Development,
LLC”).
- 10 -
III.
In Record No. 0694-13-1, the appeal filed by Julio Cabral, we reverse the equitable
distribution award based upon the account receivable owned by Sunset Development, LLC, and
the corresponding award of attorney fees to Debbie Cabral. In Record No. 0713-13-1, the appeal
filed by Debbie Cabral, we dismiss as moot her challenge to the amount of the equitable
distribution award and the award of attorney fees.10
Reversed in part; dismissed in part.
10
Both parties seek an award of attorney fees on appeal. We award appellate fees only in
the unusual case where the arguments on appeal are “not fairly debatable under any reasonable
construction of the record or the governing legal principles. We have no reluctance imposing
fees in such circumstances.” Brandau v. Brandau, 52 Va. App. 632, 642, 666 S.E.2d 532, 538
(2008) (citing O’Loughlin v. O’Loughlin, 23 Va. App. 690, 695, 479 S.E.2d 98, 100 (1996)).
Applying this standard, we deny both parties’ respective requests for appellate fees.
- 11 -