Kathleen Harris v. Hugh Harris

STATE OF MICHIGAN
COURT OF APPEALS
KATHLEEN HARRIS, UNPUBLISHED
August 30, 2016
Plaintiff-Appellee,
v No. 327590
Oakland Circuit Court
HUGH HARRIS, LC No. 2010-779157-DM
Defendant-Appellee,
v
SCHNELZ WELLS, P.C.,
Appellant.
Before: BECKERING, P.J., and CAVANAGH and GADOLA, JJ.
PER CURIAM.
In this post-judgment divorce proceeding, non-party appellant, Schnelz Wells, P.C.,
appeals as of right the trial court’s order setting off receiver fees and child and spousal support
arrearages owed by defendant Hugh Harris to plaintiff Kathleen Harris from plaintiff’s obligation
to pay defendant 50% of the equity in the marital home. Appellant contends that its recorded
attorney’s lien on defendant’s interest in the marital home has priority over plaintiff’s lien for
child and spousal support arrearages, and that the trial court should have ordered appellant’s lien
paid before crediting defendant’s support arrearage. For the reasons set forth below, we affirm
the trial court’s order.
I. STATEMENT OF FACTS
This appeal arises from a dispute between plaintiff and appellant regarding who is
entitled to what portion of defendant’s 50% equity interest in the marital home. Plaintiff was
awarded the home in the divorce judgment, dated April 26, 2012. Defendant was awarded a
50% equity interest in the home. The divorce judgment gave plaintiff the marital home as her
“sole and separate property,” and required her to remove defendant’s name from the home by
either refinancing it prior to June 30, 2014, or selling it thereafter and dividing the proceeds
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equally between herself and defendant. The trial court ordered defendant to pay monthly child
support of $1,807.46, 90% of any uninsured medical expenses for the former couple’s two
children, 70% of the cost of the children’s extra-curricular activities, and monthly spousal
support of $2,225. Shortly before the parties’ divorce, defendant entered into a written fee
agreement to obtain post-judgment legal services from appellant, who did not represent
defendant during the divorce proceedings. As security for payment of appellant’s fees,
defendant gave appellant the right to perfect a lien on his personal and real property.
Defendant soon fell behind in his support obligations and accrued substantial arrears over
the next nineteen months. In a November 19, 2013 order, the trial court appointed a receiver to
take control of all funds under defendant’s control and to pay his obligations to plaintiff, as well
as any attorney fees and costs, and enjoined defendant from liquidating, transferring, concealing,
or moving any funds under his control. The trial court appointed a different receiver the
following month because the first receiver failed to act.
On March 26, 2014, appellant filed a “Notice of attorney’s lien” with the Oakland County
Register of Deeds, claiming a lien against defendant’s 50% equity in the marital home for
attorney fees and costs, and notified plaintiff of the lien via e-mail. The lien notice contained no
identification of a dollar amount owed. Just over one month later, appellant was released by
stipulation from representing defendant.
In his first report to the trial court, the receiver concluded that the only source of funds
from which defendant’s child support, spousal support, and extra-curricular arrearages could be
paid was his 50% equity in the marital home. Instead of selling or refinancing the marital home
to reach defendant’s equity interest, the receiver recommended calculating the net equity in the
house by subtracting the mortgage and some of the usual costs of sale, such as brokerage fees
and transfer taxes, from a recent appraisal of the house, and then crediting defendant with half of
the remaining balance. The receiver noted that a transfer of title would have to take place, and
that plaintiff would likely have to refinance the house in order to remove defendant’s name from
the mortgage.
After receiving this report, plaintiff filed a motion seeking to “purchase” defendant’s
50% equity in the marital home by setting off some of defendant’s accrued child and spousal
support arrears in satisfaction of his equity interest in the house. The trial court granted
plaintiff’s request and, after the parties could not timely agree on the necessary calculations, the
receiver calculated the home’s net value and informed the court in a second report that each party
would be entitled to an equity credit of $60,573.295. Later, a more recent appraisal of the house
resulted in a net equity value of $102,516.59, or $51,258.595 for each party. The trial court also
accepted the receiver’s deduction of brokerage fees and transfer taxes from the calculation of the
home’s net equity value.
Subsequent to the receiver’s second report, plaintiff filed another motion asking the trial
court to proceed with the setoff. Observing that defendant’s child support and spousal support
arrears exceeded his equity in the house after deducting the receiver’s fee, plaintiff argued that
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the attorney lien should be extinguished because no funds would be due defendant after the
setoff. In addition, plaintiff argued that refinancing the house was unnecessary because
defendant’s mortgage obligation had been discharged in bankruptcy.1 Appellant asserted in
response that it had a valid perfected lien that should be paid from defendant’s net equity after
deducting the receiver fees and before anything was credited to defendant in satisfaction of his
support arrearages.
The substance of appellant’s and plaintiff’s arguments remained essentially the same
throughout the proceedings that followed. In a final order dated May 19, 2015, the trial court
allotted $10,246.51 to the receiver and $40,993.78 to defendant as a credit against his support
arrearages, and extinguished appellant’s lien with regard to the marital home, but not to any
other possible assets of defendant. This is the order from which appellant appeals.
II. ANALYSIS
A. LIEN PRIORITIES
Appellant first contends that, because it perfected a lien on defendant’s 50% interest in
the marital home on March 26, 2014, and plaintiff did not perfect her child- and spousal-support
lien, the trial court erred by not subordinating plaintiff’s unperfected lien for support to
appellant’s prior perfected lien. We disagree.
The issue presented involves statutory interpretation, which is a question of law that we
review de novo. Elba Twp v Gratiot Co Drain Comm’r, 493 Mich. 265; 278; 831 NW2d 204
(2013). The primary goal of judicial interpretation of statutes is to ascertain and give effect to
the intent of the Legislature. Mich Ed Ass’n v Secretary of State (On Rehearing), 489 Mich. 194,
217; 801 NW2d 35 (2011). Statutory language should be construed reasonably and in context,
keeping in mind the purpose of the act. McCahan v Brennan, 492 Mich. 730, 739; 822 NW2d
747 (2012).
Appellant bases its claim of priority on MCL 552.625a and MCL 552.625b. MCL
552.625a provides in pertinent part:
(1) The amount of past due support that accrues under a judgment as provided in
[MCL 552.603] . . . constitutes a lien in favor of the recipient of support against
the real and personal property of a payer . . . . The lien is effective at the time that
the support is due and unpaid and shall continue until the amount of past due
support is paid in full or the lien is terminated by the title IV-D agency.
* * *
(3) A lien created under subsection (1) is subordinate to a prior perfected
lien. . . .[Emphasis added].
1
The record reveals that in 2012, defendant filed for bankruptcy under Chapter 7.
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MCL 552.625b provides that the enforcement agency may perfect a lien against real or personal
property of a payer who falls more than two months behind in his or her support payments.
MCL 552.625b(2)-(4). When a child-support lien arises against the real or personal property of
the payer, the property is subject to seizure unless the payer pays the arrearages or challenges the
lien order. MCL 552.625b(5)-(7).
Appellant relies on MCL 552.625a(3) and MCL 552.625b to contend that its perfected
lien against defendant’s equity interest in the marital home has priority over the support lien
created under MCL 552.625a(1) because neither plaintiff nor the enforcement agency perfected
the lien pursuant to the procedures outlined in MCL 552.625b. In other words, because appellant
perfected before plaintiff perfected, its lien has priority.
Appellant misconstrues MCL 552.625a(3) to imply that its recorded lien on defendant’s
equity interest operates retroactively to defeat a lien under MCL 552.625a(1). MCL 552.625a(1)
creates a lien “effective at the time that the support is due and unpaid” support, while MCL
552.625a(3) operates to protect creditors who perfected their liens prior to creation of a lien
under subsection (1) as well as intervening creditors who perfect before later arrearages accrue
and are subject to a support lien. See In re DeGroot, 460 B.R. 159, 168 (Bankr WD Mich, 2011)
(noting that a lien created by MCL 552.625a(1) refers only to arrears “due and unpaid,” but not
to unmatured child support arrears).2 Where a creditor files a lien against a payer’s assets prior
to creation of a support lien under MCL 552.625a(1), the creditor’s lien has priority pursuant to
MCL 552.625a(3). A creditor who perfects a lien on a payer’s property after a support lien has
already arisen under MCL 552.625a(1) is an intervening creditor. Id. at 168-169. Pursuant to
MCL 552.625a(3), the intervening creditor has priority over support that is not yet due and
unpaid, i.e., unmatured support. Id. This interpretation of MCL 552.625a(1) and (3) is also
consistent with Michigan’s public-policy interest in enforcing child-support obligations. In the
instant case, $40,993.78 in support arrears was “due and unpaid” on March 26, 2014, when
appellant perfected its lien3 and became entitled to recover attorney fees and costs from
defendant’s equity interest. Accordingly, plaintiff’s lien in this amount was superior up to March
26, 2014, but subordinate to appellant’s lien with regard to arrears that would accrue after that
date.
Appellant argues that, if a support lien created under MCL 552.625a(1) has priority
without being perfected, then MCL 552.625b is superfluous. As explained above, however, a
support lien created under MCL 552.625a(1) does not have priority over the amount owed a
creditor who perfects before the support lien arises, nor with regard to unmatured support in the
case of an intervening perfected creditor. The provisions of MCL 552.625b come into play if the
2
“Although the decisions of lower federal courts are not binding precedents, federal decisions
interpreting Michigan law are often persuasive.” Omian v Chrysler Group, LLC, 309 Mich. App.
297, 307 n 6; 869 NW2d 625 (2015)(quotation marks and citation omitted).
3
This assumes that appellant’s fee agreement with defendant permits what appellant claims it
does and that appellant properly perfected the lien, which this Court need not decide in light of
the outcome.
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title IV-D agency elects to seize a payer’s real or personal property unless the payer responds by
paying the outstanding arrearage or requesting a review on the lien within a certain time. Here,
plaintiff did not move to seize defendant’s personal or real property, but to set off receiver fees
and support arrearages owed by defendant from her obligation to pay him 50% of the equity in
the marital home that she owned.
Appellant also contends that, under MCL 552.625a(6), a support lien created under
subsection (1) cannot arise against attorney fees. However, appellant reads this section out of
context. MCL 552.625a(6) reads in relevant part:
A lien under subsection (1) does not arise against any of the following:
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(e) That portion of money to be paid as a distribution from a decedent's estate; as
the result of a claim for negligence, personal injury, or death; under an arbitration
award; under a settlement of or judgment issued in a civil action; or as
compensation under a worker's compensation order, settlement, redemption order,
or voluntary payment that is owed for any of the following:
(i) Attorney fees. [MCL 552.625a(6)(e).]
The attorney fees in the instant case did not arise under any of the circumstances described in (e),
and, therefore, are not exempt from the lien created under MCL 552.625a(1).
To summarize, the lien created by MCL 552.625a(1) had priority until appellant recorded
its lien on March 26, 2014. By that time, however, defendant owed more in child- and spousal-
support arrearages and receiver fees than he had equity interest in the house. Consequently,
there was nothing to which appellant’s lien could attach. In addition, appellant’s attorney fees
are not exempt from the lien created under MCL 552.625a(1) because they are not related to a
distribution from a decedent’s estate, a claim for negligence, an arbitration award, a civil
settlement or judgment, or to payments made under a worker’s compensation order. MCL
522.625a(6)(e).
B. EQUITY CALCULATION
Appellant next argues that the trial court erred by deducting brokerage fees and transfer
taxes from the parties’ equitable value in the home based on a purely fictitious sale. This error
resulted in a $19,865 reduction in the equitable value of the home and, consequently, in the sum
of money available to apply toward satisfaction of appellant’s lien. We again disagree.
In reviewing a dispositional ruling in a divorce case, we review the trial court's findings
of fact for clear error and then decide “whether the dispositional ruling was fair and equitable in
light of the facts.” Hanaway v Hanaway, 208 Mich. App. 278, 292; 527 NW2d 792, 799 (1995).
We will affirm property disposition rulings unless we are left with the firm conviction that the
distribution was inequitable. Id.
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Appellant relies on Hanaway to argue that the trial court erred by deducting brokerage
fees and transfer taxes in arriving at the net equity of the marital home. The defendant in
Hanaway challenged on cross-appeal the trial court’s valuation of his stock without considering
tax consequences. This Court affirmed the trial court’s decision, finding no clear error in light of
the trial court’s “determination that no sale or other taxable event was planned or contemplated.”
Id. at 300-301. Drawing a reverse analogy, the appellant in this case contends that, because
neither plaintiff nor the trial court contemplated a sale of the marital home, the trial court erred
by deducting brokerage fees and transfer taxes from the home’s value. In light of the facts of the
instant case, appellant’s reliance on Hanaway is unavailing.
The present case is distinguishable from Hanaway by the fact that, unlike the trial court
in Hanaway, the trial court here did not determine that sale of the marital home was not planned
or contemplated. It is true that the court wanted to find a solution that would allow plaintiff to
keep the house. It is also true that plaintiff believed it unnecessary to refinance the house
because defendant’s financial obligation on the mortgage was discharged in bankruptcy.
However, as the receiver correctly pointed out, the judgment of divorce required plaintiff to
remove defendant’s name from the mortgage and failure to do so could negatively affect
defendant’s ability to obtain credit in the future. In light of this, and considering that defendant
continued to be substantially behind in support payments, whether plaintiff will be able to keep
the house remains uncertain. Had brokerage fees and transfer taxes not been deducted, if
plaintiff has to sell the house because of financial difficulties caused largely by defendant’s
mounting support arrearages, she will bear not only all of the deducted expenses, but also all of
the other costs associated with selling a house that the receiver excluded from his calculations.
Considering the circumstances of this case, and considering that the goal of dispositional rulings
is fairness and equity in light of the facts of a case, Hanaway, 208 Mich. App. at 292, the trial
court’s decision to deduct the expenses at issue from the net value of the marital home was
equitable.
Affirmed.
/s/ Jane M. Beckering
/s/ Mark J. Cavanagh
/s/ Michael F. Gadola
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