Family Law Legal Articles Courtesy of Lawyers Weekly
Man could attack property split due to extrinsic fraud
7-11-07 -- A Richland County man could reopen his equitable division after he discovered his ex-wife allegedly tried to hide an additional $130,000 payment she received when the couple sold their pharmacy, the Supreme Court has ruled.
The reason: The deliberate concealment of a marital asset from the court during divorce proceedings would constitute extrinsic fraud, the justices said in a 3-2 decision.
Established case law allows litigants to attack final judgments based on allegations of extrinsic fraud, but not intrinsic fraud. The distinction: Extrinsic fraud is difficult or impossible to discover during litigation, intrinsic fraud isn't.
The man's attorney, Jean Perrin Derrick of Lexington, said courts rarely allow litigants to revive settled judgments.
"We had a lot of compelling facts. This is a very murky, antiquated area of the law — all probably for good reason, because judgments should be very hard to reopen. The compelling facts here drove the court to refine and be more specific in guidance to the bench and bar about when you could reopen judgments," Derrick told Lawyers Weekly.
"Here we had a carefully crafted scheme perpetrated outside the courtroom, and I think that's why it is extrinsic. It was not just perjury, it was not just failure to disclose facts unfavorable to her own case. It was burying something. It's not mere omission, it's an affirmative commission," she said.
The ex-wife's attorney, W. Joseph Isaacs of Columbia, said he plans to petition for a rehearing based on the narrow split.
The plaintiff argued that his ex-wife committed fraud when she entered into a separate agreement with CVS when the couple sold their pharmacy. CVS paid the ex-wife $130,000 to sign an agreement not to compete — but she allegedly arranged to delay payment until after the divorce was finalized, according to the opinion.
The plaintiff contended that his ex-wife deliberately concealed the agreement during discovery and depositions taken during the divorce process, as well as in an accounting to the court.
The majority said those allegations, if true, would support setting aside the 2001 equitable division.
"[The ex-wife's] actions rose to the level of extrinsic fraud when she engaged in a fraudulent scheme to hide assets from the court and, in doing so, utilized an unknown third party, CVS, not subject to discovery during the litigation," Justice E.C. Burnett III wrote.
Derrick said the ex-wife's concealment would have gone undetected if her new boyfriend had not sent a fax to the plaintiff to tell him about the CVS money.
"We wouldn't have found out about it if not for the fluke of the boyfriend ratting her out," she said.
The case is Ray v. Ray (South Carolina Lawyers Weekly No. 010-108-07, 10 pages). Chief Justice Jean Hoefer Toal and Justice James E. Moore concurred. Justice Costa M. Pleicones wrote a dissent and was joined by Justice John H. Waller Jr.
The dissent said the wife's alleged concealment was merely intrinsic fraud.
Much of the disagreement between the majority and the dissent centered on their divergent readings of the 2003 decision in Chewning v. Ford Motor Co., 354 S.C. 72.
The Chewning court said that "the subornation of perjury by an attorney and/or the intentional concealment of documents by an attorney are actions which constitute extrinsic fraud" (see April 21, 2003 Lawyers Weekly).
The dissent in Ray said the Chewning ruling meant an attorney or other officer of the court typically must be involved in the fraud in order for it to justify a collateral attack on a judgment.
Not so, the majority said. "[O]ur holding in Chewning does not limit the finding of extrinsic fraud to misconduct of an attorney or an officer of the court."
However, the dissent's interpretation of Chewning meshes with how one of the lawyers in that case understood the ruling when it first came down.
"The lawyer has to be involved. That's the difference between extrinsic and intrinsic fraud. If you find out three years later that the witness lied or that the client withheld a document, that's not enough to overturn a judgment because that's intrinsic fraud. But if you find out there was a concerted effort in conjunction with an attorney who is an officer of the court, you have extrinsic fraud," Columbia attorney Mark W. Hardee told Lawyers Weekly after Chewning was decided in 2003. Hardee represented the party that alleged extrinsic fraud in that case.
The plaintiff and his ex-wife were divorced in 2000. The Family Court approved the equitable division of their marital estate the next year.
The plaintiff sued in 2005. He alleged a fraud upon the court based on his ex-wife's deliberate concealment of the $130,000 she received from CVS in exchange for the non-compete agreement.
The ex-wife argued that the plaintiff simply failed to exercise due diligence to discover what she said was an intrinsic fraud.
The Family Court granted the ex-wife's motion to dismiss under Rule 12(b)(6), SCRCP.
The plaintiff appealed.
The majority reversed the dismissal.
"In delaying the payment by CVS until after the divorce, [the ex-wife] engaged in 'a deliberately planned and carefully executed scheme to defraud,'" Justice Burnett wrote
"We hold an act of perjury or concealment of a document coupled with an intentional scheme to defraud the court justifies the setting aside of a judgment pursuant to Rule 60(b) due to extrinsic fraud," the opinion states.
To support its decision, the majority cited the case of Evans v. Gunter, 294 S.C. 525 (1988).
The Evans court said that "fraud upon the court" was defined as either a fraud perpetrated by an officer of the court or "that species of fraud which does, or attempts to, subvert the integrity of the court itself."
Wrote Justice Burnett, "Evans involved an act of intrinsic fraud accompanied by an intentional act or scheme to defraud or mislead the court, making the fraud rise to the level of extrinsic fraud."
The situation was the same in Ray, according to the majority.
The ex-wife's misrepresentations regarding the marital estate constituted merely an intrinsic fraud, the court said. "However, in this case, as in Evans, there was 'a showing that one has acted with an intent to deceive or defraud the court,'" the opinion states. Such a showing elevated the ex-wife's actions to an extrinsic fraud, according to the decision.
Examine ways to end explosion of 'state-created orphans'
In their recent draft article, University of Michigan Professors Frank Vandervort and Vivek Sankaran objected to our suggested legislative changes to Michigan's child protection laws, as described in the Detroit Free Press article, "Foster care laws examined; Judges: Kids damaged too much," April 22, 2007.
As both of us have testified in recent legislative hearings, the Binsfeld legislation, which made it easier for judges to terminate parental rights in abuse and neglect cases, had an unintended but terrible consequence: The creation of thousands of "legal orphans" who languish in foster care and age out of the system without a family or other support network.
Professors Vandervort and Sankaran contend, however, that current laws are adequate because judges already have "broad discretion" in termination of parental rights cases. But their argument is based on several flawed premises.
They first opine that trial judges are inadequately trained and hence do not understand the current law. But Michigan has in place a number of judicial training programs, which start before a trial judge takes the bench and continue throughout a judge's career. Continuing judicial education is not only encouraged, but required. Our state's trial judges are usually very well acquainted with the substantive law on their cases. Bear in mind that hundreds of termination of parental rights cases are appealed to our Court of Appeals each year. If Michigan's trial judges were routinely misapplying this law, the Court of Appeals would reverse those decisions. Instead, more than 97 percent of terminations of parental rights are affirmed.
The professors also argue that our trial judges are cowed by the prospect of a controversial decision. But the risk of controversy is part of the job for any judge. Criminal cases, for example, are far more likely to draw criticism towards a judge. In our experience, judges faithfully fulfill their duties under the law, undeterred by criticism. Moreover, most child protection cases pass through our system with very little notoriety, considering the volume of cases of this type. The problem is not notoriety, but that children's cases are too often relegated to the bottom of the judicial branch food chain.
Professors Sankaran and Vandervort also contend that counsel for children and parents in the system are "typically overworked, underpaid solo practitioners or legal aid lawyers who have few resources to assist them." While this is often the case, this is not a new situation; public defense lawyers have always suffered from this disadvantage. This factor does not account for the huge rise in state-created orphans in the last decade. And the professors do a disservice to many of these lawyers, who do a very good job for their clients despite low pay and high caseloads.
The problem of state-created legal orphans was almost certainly caused by a few changes in the law, made between the mid 1980s to mid 1990s, which aimed at increasing the speed of litigation and certainty of result, contrary to what professors Sankaran and Vandervort imply. The law did this by greatly restricting the discretion of the child protection agency — and of judges, as observed by the Michigan Supreme Court in In re Trejo Minors, 462 Mich. 341, 354:
"While (the current law) imbues the court with some discretion, that discretion is significantly diminished from prior law, which permitted the court to not terminate (parental rights), even when at least one ground for termination was established. Once a ground for termination is established, the court must issue an order terminating parental rights unless there exists clear evidence, on the whole record, that termination is not in the child's best interests."
Michigan trial judges have faithfully applied that law; it is almost certainly the cause of the explosion in state-created orphans. Not only has the number of these children more than doubled over the past decade, but also we now have so many "permanent, unadopted wards" in the system that they are "aging-out" at a rate of approximately 500 young people per year.
This is a crisis, and it is not limited to Michigan. Since some of these legal changes were brought about by changes in federal law, other states are grappling with this problem, and have changed their laws in response. We are trying to do the same. We do not ask for our proposals to be accepted uncritically, but neither should they be rejected out of hand.
Maura D. Corrigan is a Michigan Supreme Court justice, and Kenneth L. Tacoma is chief judge of the Wexford County Probate Court.
A husband can cut off his $4,000 monthly spousal support to his wife who lived in a relationship "analogous to a marriage" with her lesbian partner.
The husband in Stroud v. Stroud (VLW 007-7-062) used a surprising bit of holiday spin - a cheery Christmas letter sent by the wife's partner - to prove that the two women were cohabiting in violation of the couple's property settlement agreement.
Annual holiday letters usually are harmless bits of puffery.
But this Christmas letter came back to haunt the wife in a court of law, when the Virginia Court of Appeals quoted at length from the partner's description of her relationship with the wife and the wife's three daughters.
The trial court had upheld the wife's right to continued support.
Fairfax Circuit Judge M. Langhorne Keith found that the same-sex couple was not cohabiting, even though the two women had exchanged diamond rings and typically spent five out of seven nights together in the ex-wife's home.
The Virginia Court of Appeals reversed, holding that under a PSA that covered "any person" as a partner, a same-sex couple could be in a relationship analogous to a marriage, even when such a relationship is not recognized under Virginia law.
Court of Appeals Judge James W. Haley Jr. said the parties' contract, with its "any person" language, controlled the case.
The contract was "between a man and a woman, husband and wife," and it was that contract, and not any statute defining "cohabitation," that was at issue in the Stroud case.
Joseph and Debra Stroud divorced in 1999. Under their PSA, the husband's monthly spousal support payments would terminate upon the wife's "cohabitation with any person … in a situation analogous to marriage" for 30 or more continuous days.
According to Haley's opinion, the uncontested evidence - including the wife's admissions and deposition and a stipulation to private detectives' observations - supported a finding of cohabitation.
The evidence indicated that the wife's partner, Robyn, owned her own home, but rented most of that space to another family and spent an average of five nights a week at the wife's home, where she also kept clothes, toiletries and files, and participated in household chores. The two women indicated that they had an intimate relationship, but kept most of their finances separate.
Haley also quoted from a Christmas letter written by Robyn, saying that both women participated in the "joy and frustrations of raising three girls," and that when the wife was not working, she was "busily putting food on the table, doing laundry and making sure the pantry is stocked. We could not live without her."
Robyn recounted that she was "the most spoiled of us all" and that she liked "to think that I know a good thing when I find it!"
Citing Pellegrin v. Pelligrin, 31 Va. App. 753 (2000), Haley analyzed the elements of the women's relationship in terms of their common residence, intimate involvement, financial support from the wife to her partner, and the exclusive nature of their three-year relationship, and said the husband had established by a preponderance of evidence that the couple was cohabiting in violation of the PSA.
Look for PSAs to start employing gender-neutral "any person" language in order to cover all bases, according to Richard J. Colten, the Fairfax lawyer who represented the ex-wife.
But the Stroud case may not afford any extra protection to domestic-arrangement contracts entered into by same-sex couples, according to the lawyers in the case.
Alexandria lawyer James R. Cottrell, who represented the husband, said "the case has no public policy implications" because the "husband bargained specifically" for the PSA at issue.
Colten said that "people will read into [the case] what they want." Some people may read it as supporting legal recognition of same-sex relationships, but he does not necessarily agree.
Cottrell said he is looking into whether his client has any remedy to recover spousal support already paid after the wife was in violation, while Colten said his client is considering an appeal.
Case To Decide
On Statutory Fee Award
A case argued last week at the state Supreme Court could resolve whether attorneys who handle domestic cases pro bono are entitled to a statutory award of legal fees.
At issue are the fee-shifting provisions of G.S. Sect. 50-16.4. Under that statute, when a dependent spouse is entitled to alimony or post-separation support, a court can order the supporting spouse to pay the other side's "reasonable counsel fees."
Last January, a divided Appeals Court in Patronelli v. Patronelli (North Carolina Lawyers Weekly No. 06-07-0026, 22 pages) said that fee-shifting statue didn't apply to a Wake County wife whose lawyer took her case on a pro bono basis (see Jan. 12, 2006 issue).
The thrust of the majority holding, written by Judge Ann Marie Calabria: since the lawyer did not charge an hourly or flat fee for his services, the dependent spouse never incurred counsel expenses, and the statute never came into play.
The wife appealed based on a dissent by Judge James A. Wynn Jr., who said "the fact that wife's legal services were provided pro bono is of no consequence in the threshold determination of whether she is eligible for an award of attorney fees."
Raleigh lawyer John R. Oliver, who is representing the husband, said in his brief to the Supreme Court that the appeals panel majority reached the correct result.
He argued the statute is intended to provide a fee award for the benefit of the dependent spouse. In this case, she would get no benefit, he said.
"In truth, this entire appeal is not for the benefit of [the wife], but rather the benefit of her attorney," Oliver argued.
Several bar groups and legal services organizations disagree and have filed amicus briefs. They predict that the Appeals Court ruling, if allowed to stand, could have dire consequences. They said it would make it more difficult for dependent spouses with low incomes to find a lawyer.
"A supporting spouse will be encouraged to render the dependent spouse as destitute as possible, to diminish the possibility that the dependent spouse can pay an attorney up front," according to a brief filed on behalf of several groups, including Legal Aid of North Carolina and the North Carolina Association of Women Attorneys.
"Even if the dependent spouse is able to locate an attorney willing to work pro bono, the lack of any possibility of fee-shifting will eliminate the usual incentives to keep litigation costs at a minimum and settle as early as possible," the brief states.
Those groups warned that the ruling could have a ripple effect on legal services providers, which are prohibited from seeking attorney's fees under fee-shifting statutes.
"Under pre-Patronelli law, legal services providers would refer cases involving potential fee-shifting to volunteer lawyers, some of whom were more willing to undertake the representation due to the possibility of shifted fees," the brief states. "These organizations would be able to devote more of their already overtaxed and finite resources to the numerous cases in which fee-shifting is not available.
"If fee-shifting is eliminated in pro bono cases, however, fewer attorneys will be willing to volunteer, with the result that many previously 'outsourced' cases will have to be handled 'in house' by these organizations."
In the underlying domestic dispute, the parties married in August 1997 and separated four years later. The husband filed a complaint seeking custody of a minor child, child support and equitable distribution.
The wife counterclaimed for custody of the minor child, child support, postseparation support and alimony.
After the trial court ruled on those issues, the wife's lawyer claimed expenses and fees of $2,500 in pursuing his client's permanent alimony case. The trial judge refused to award fees under G.S. Sect. 50-16.4, finding that "defendant is represented on a pro bono basis by her counsel" and "has not incurred any … expenses as she is not personally liable to her counsel for the same."
The wife appealed. The Appeals Court majority affirmed.
Writing for the majority, Judge Calabria ruled G.S. Sect. 50-16.4 failed to include expenses incurred by a pro bono lawyer.
"'Attorney's fees' are defined as '[t]he charge to a client for services performed for the client, such as an hourly fee, a flat fee, or a contingent fee,'" the court said. "Accordingly, counsel fees cannot, by definition, be implicated in the present case where the dependent spouse never incurred counsel expenses."
Judge Wynn dissented, saying he would have remanded to decide what fee, if any, the wife should be awarded.
Only On Wife's Need,
By GREGORY FROOM, Legal Editor
The Appeals Court has upset a Greenville woman's alimony award that was based only on her "need" and her ex-husband's ability to pay
The award was erroneous because there was no evidence that the Family Court considered the wife's "substantial nonmarital assets" when setting alimony, according to the Sept. 11 opinion.
The appeals panel said the lower court's order was ambiguous on how the wife's need was calculated, and whether that determination took into account her personal assets.
According to the decision, the Family Court's order did not indicate a sufficient consideration of all the statutory factors involved in awarding alimony.
The Court of Appeals reversed the $1,200-per-month alimony award and remanded the case for reconsideration.
The panel also reversed an award of expert fees to the wife because she failed to substantiate the costs with receipts or other evidence. The court upheld the equitable distribution of the couple's property.
The case is Fuller v. Fuller (South Carolina Lawyers Weekly No. 011-168-06, 11 pages). Judge Donald W. Beatty wrote the opinion and Judges Thomas E. Huff and H. Samuel Stilwell concurred.
The husband and wife got married in 1980 and had two children during the course of the marriage.
The wife worked at a bank when the couple was first married and later worked at a clothing boutique after the couple moved to Charlotte, N.C. The husband worked at Owens Corning at the time.
The couple became interested in selling real estate and took classes on the subject. They then relocated to Greenville where both worked in the real estate business.
When the children were born, the wife became primarily responsible for their care and housekeeping.
According to the opinion, the family lived affluently. They had a large home in an exclusive neighborhood, belonged to a country club and took numerous vacations.
Early in the marriage, the husband took a job at a bank and began a residential construction company, Fulco. The husband and wife were each 50 percent shareholders in Fulco.
The wife periodically worked as a decorator for Fulco and performed other tasks. She received an $18,000 salary for her efforts.
The husband and wife also had interests in other companies. The husband formed a real estate holding company with his cousin. The husband and wife each received shares of an investment company started by the wife's father.
The wife also held interests in other family enterprises.
In March 2002, the wife discovered that the husband was having an affair. She moved out and filed a divorce action on April 4, 2002.
The husband admitted his misconduct.
A final hearing was held in October 2003. The wife blamed the breakup of the marriage on the husband's adultery, but the husband said the split was due to the wife's overspending and disagreements about childrearing.
The Family Court granted the wife a divorce based on adultery. The court awarded the wife $1,200 in monthly alimony.
The court also ordered the husband to pay the wife's attorney's fees and costs for experts used in assessing the value of the marital property.
The husband appealed.
The husband argued that the alimony award was in error because the Family Court failed to consider the wife's sizeable nonmarital assets.
The appeals panel agreed and remanded the case for reconsideration of alimony.
"It is difficult for this court to discern what factors the Family Court considered in awarding [the] wife alimony," Judge Beatty wrote.
"The Family Court only cited [the] husband's ability to pay and [the] wife's 'need' in awarding alimony," he wrote.
At the temporary hearing, the wife indicated that expenses for her and her daughter were $4,358 per month, according to the opinion. At the final hearing, her financial declaration showed monthly expenses of $9,243.
"It is unclear which of [the] wife's financial declarations the court relied upon in determining [the] wife's 'need.' It does not appear the court considered that [the] wife's expenses nearly doubled from the time between the temporary and final hearing," the opinion states.
The court also said that it was unclear whether the Family Court took into account the wife's "substantial nonmarital assets" when determining her need. The lower court's order also did not mention the nearly $50,000 of debt the husband incurred after the breakup.
"[A]lthough different portions of the order note the length of the marriage, the parties' health, [the] husband's infidelity and [the] wife's income potential, it does not appear from the order that the court considered these matters in awarding alimony," the opinion states.
The appeals panel also reversed a $2,904 award to the wife for fees charged by her forensic economist and her CPA.
The reason: the wife failed to produce receipts or other evidence to support the fees' existence, the court said.
The Appeals Court rejected the husband's objections to the equitable distribution award, the Family Court's valuation of assets and its classification of certain holdings as marital assets.
Family law's new clientele: Internet lovers
A decade after the launch of online dating services, family lawyers are starting to see the first wave of couples who met online.
Some are coming in for prenuptial agreements before marrying. Others are filing for divorce as they seek to sever a romantic knot tied online.
There are no studies determining whether relationships that begin online fare better or worse than any others on a long-term basis.
But Raoul Felder, a prominent New York divorce lawyer, contends that marriages born out of Internet romances are more likely to end in failure.
"Basically, you're dealing with two desperate people who meet each other by the printed word," he said. "There's no truth in packaging in these things. It's a sell job, and it depends on how long you use the product before you determine it's not working."
Some online Lotharios embellish descriptions of their wealth, for example. And a relationship that clicks online may be a turnoff once a couple starts living together.
"The motto is caveat emptor," Felder said.
Despite the potential pitfalls, the popularity of online dating has soared in the past several years. According to Jupiter Research, online personal ads have grown into a $500 million a year business. Major players include Yahoo personals, match.com, eHarmony, jdate.com, blackplanetlove and true.com.
According to a recent survey by Pew Internet & American Life Project, one in 10 Internet users said they had gone to an online dating website. Seventeen percent of those who use online dating websites said their online romances have resulted in a long-term relationship or marriage. And one in six adult Americans say they know someone who has been in a long-term relationship or married someone they met online.
Divorce lawyers are starting to see the first wave of couples who wooed online, married and are now splitting up.
Chevy Chase, Md. divorce lawyer James Gross has had several clients like this. He speculated that couples who meet online may have shorter courtships - because they feel they already know each other through their online conversations. But in some cases, he said, short courtships can mask differences which lead to major marital conflicts.
Barbara Handschu, a family lawyer with offices in Manhattan and Buffalo, N.Y., agreed: "I would guess that many who meet online may not form the strongest ties, which may lead to divorce."
Robert Hoover, a divorce lawyer in San Jose, Calif., estimated that about 10 percent of his firm's clients are either couples who met online and are getting divorced, or married clients who have fallen in love with someone else online and want a divorce.
"The thing that is interesting is how people are leaving their spouses for someone they have never even met, except online," he said. "It's totally amazing. A client will come in - man or woman - and say there's someone across the country I want to marry. When I ask them, 'Have you met at all?' the answer is, 'No, I just know this is my soul mate.'"
Henry Gornbein, a family lawyer in Bloomfield Hills, Mich., believes the Internet is often a factor in divorce. Online gambling addiction, compulsive Internet shopping shopping and flirting with other people online can all undermine a marriage.
"I've had people who have run off with other people they've met on the Internet," he said.
But several family lawyers contend that Internet daters who marry are no more likely to break up than other couples.
Sandra Morris, a family lawyer in San Diego, said she's prepared three prenuptial agreements for couples who met online.
"In each of these cases, the people seemed like they were fairly good matches," she said. "I think in some ways the online experience has been a better winnower - separating the wheat from the chaff - than meeting someone in a bar."
People who date online are more likely to choose someone similar to them, in terms of economic background, education and age, she said.
Talking online also reins in the physical "chemistry" that can sometimes impair judgment when choosing a life mate.
People who meet offline - either through work, friends, family or at a bar - sometimes blind themselves to the other person's faults, thinking he or she will change later.
"Of course, people don't change," Morris said. "With online dating, if somebody's really different [than themselves], they don't ignore that."
And "there is something to be said for having your communication sober," she added.
"Harmony in the married
state is the very first object to be aimed at."
"I do not charge the judges with wilful and
ill-intentioned error; but honest error must be arrested where its
toleration leads to public ruin. As
the safety of society, we commit honest maniacs to Bedlam; so judges should
be withdrawn from their bench whose erroneous biases are leading us to
dissolution. It may, indeed, injure them in fame or in fortune; but it saves
the republic, which is the first and supreme law."
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