MICHAEL R. ROETHER v. PATRICIA J. ROETHER (NOW DEHNER); W. ROBERT LOTZ
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RENDERED: June 30, 2000; 2:00 p.m.
NOT TO BE PUBLISHED
C ommonwealth O f K entucky
C ourt O f A ppeals
NO.
1999-CA-00O544-MR
MICHAEL R. ROETHER
APPELLANT
APPEAL FROM CAMPBELL CIRCUIT COURT
HONORABLE WILLIAM J. WEHR, JUDGE
ACTION NO. 96-CI-00543
v.
PATRICIA J. ROETHER (NOW DEHNER);
W. ROBERT LOTZ
APPELLEES
OPINION
AFFIRMING
** ** ** ** **
BEFORE:
DYCHE, EMBERTON, AND HUDDLESTON, JUDGES.
JUDGE, DYCHE:
Michael R. Roether appeals from an order of the
Campbell Circuit Court denying his motion to terminate his
maintenance obligation to appellee, Patricia J. Roether (now
Dehner).
The maintenance obligation was in reality a
distribution of marital property, but was structured as a
maintenance obligation for tax purposes and to distribute the
business risk associated with the asset.
The parties were married on October 27, 1978, and
separated on May 21, 1996.
On June 30, 1996, Michael filed a
petition to terminate the marriage.
Matters were referred to the
Master Commissioner of the Campbell Circuit Court (Commissioner).
A final hearing was held on March 13, 1997.
On April 15, 1997,
the Commissioner filed his recommendations.
Included in the
report was a recommendation which has led to the present
controversy.
The recommendation concerned the disposition of a
marital asset, a consulting agreement, which arose as a result of
Michael’s sell-out of his interest in the construction firm “Mike
Roether and Son Construction, Inc.” (the Company).
The
Commissioner’s recommendation was as follows:
With respect to the monies due and owing to
[Michael] by Mike Roether & Son Construction,
Inc. under the “CONSULTING AGREEMENT” . . .,
according to the testimony of [Patricia’s]
expert witness an assignment could not be
executed in favor of [Patricia] for one-half
(½) the monies due and owing to [Michael]
without [Michael] still being responsible for
all of the income tax liability associated
therewith. This does not seem fair nor does
it seem fair to make [Michael] assume all of
the risk associated with Mike Roether & Son
Construction, Inc. Therefore, even though
[Patricia] might not otherwise be entitled to
maintenance, it is recommended that [Michael]
pay [Patricia] maintenance in the amount of
$1,057.00 per month through December 31, 2004
or until he ceases receiving payments from
Mike Roether & Son Construction, Inc. under
the “CONSULTING AGREEMENT”. In this way,
each of the parties also will equally assume
the tax liability and the risk associated
with the payments due and owing under the
“CONSULTING AGREEMENT”.
On May 7, 1997, the trial court entered an order substantially
confirming the report, including the foregoing recommendation.
On May 8, 1997, the divorce decree was entered.
On May 27, 1997, Patricia filed a motion to hold
Michael in contempt because, among other reasons, he had failed
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to pay his maintenance obligation.1
On August 15, Patricia
supplemented her contempt motion and moved to, among other
things, reduce the award to a lump sum judgment.
Attached as an
exhibit to the supplemental motion was a letter dated June 13,
1997, from the construction company signed by Michael’s son,
Richard Roether, the company president, informing Michael that
the consulting contract was being canceled because the company
was dissatisfied with Michael’s work as a consultant.2
Also
attached was a letter from Michael to Patricia’s counsel which
stated, in part, “I will not be obligated to pay any monies [to
Patricia after July 13, 1997] under the consulting agreement.
have been terminated [as a consultant].”
I
Michael thereupon
ceased making the maintenance payments to Patricia as required
under the maintenance award.
On October 3, 1997, Michael filed a motion requesting
that he be relieved of any obligation to make maintenance
payments to Patricia because the agreement had been terminated.
On October 14 a hearing was held on the pending motions.
December 3 the Commissioner issued his report.
On
The Commissioner
made a finding that immediately following the purported
cancellation of the consultation agreement,
1
While this obligation was a “maintenance” obligation in
name only, we will nevertheless refer to it by that designation.
The obligation is more accurately described as a “distribution of
marital property” obligation.
2
Paragraph nine of the consulting contract permitted the
company to cancel the agreement “in the event that the Consultant
does not perform the services required under this agreement to
the satisfaction of the Corporation.”
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[Michael’s] new wife, Kim, incorporated a new
business known as “K.M.R. Services” and
entered into a contract whereunder her
company would perform the same services which
[Michael] had been performing under the old
“CONSULTING AGREEMENT” for Richard. Kim is
the sole shareholder of K.M.R. Services and
she is its president. [Michael] is the sole
employee of K.M.R. Services and he is
providing the same services to Mike Roether &
Son Construction, Inc. as he did under the
old “CONSULTING AGREEMENT” at approximately
the same salary.
Based upon this finding the Commissioner stated that
[i]t is ludicrous to think that this series
of events whereby Richard terminated the old
“CONSULTING AGREEMENT” between Mike Roether &
Son Construction, Inc. and [Michael] and then
immediately rehired [Michael] pursuant to a
new agreement between Mike Roether & Son
Construction, Inc. and [Michael’s] new wife’s
new company is anything other than a complete
sham transaction. It is a blatant attempt by
[Michael] to perpetrate a fraud upon not only
[Patricia] but also the Court. The
“CONSULTING AGREEMENT” could only be
terminated in the event that [Michael] did
not perform the services required of him
thereunder to Richard’s satisfaction. In his
letter of June 13, 1997, . . . Richard
indicates that he is canceling [sic] the
“CONSULTING AGREEMENT” due to his
dissatisfaction with [Michael]. However, he
then immediately turns around and rehires
[Michael] to perform the same services under
the new agreement with K.M.R. Services.
[Michael] receives no salary from K.M.R.
Services. Rather, all of the monies due and
owing by Mike Roether & Son Construction,
Inc. to K.M.R. Services are deposited
directly into [Michael’s] joint bank account
with his new wife, Kim.
The report recommended that Michael be ordered to
immediately pay all arrearages associated with this maintenance
obligation and that he keep his obligation current else face
incarceration.
Patricia excepted to the report insofar as it did
not recommend a modification to the language of the maintenance
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award because, in her view, absent that, Michael would persist in
avoiding his obligation.
On December 24, 1997, the trial court
entered an order accepting the Commissioner’s recommendations in
full, except that Patricia’s exception was to remain under
submission.
On January 21, 1998, the trial court entered an
order denying Patricia’s exception.
Michael continued to refuse to pay his maintenance
obligation, and on January 12, 1998, a bench warrant was issued
for his arrest.
On January 29, 1998, Michael filed a motion to
terminate maintenance on the basis that he did not have the
financial resources to pay the obligation and because “the order
of maintenance should no longer have prospective application in
that the award is not maintenance, but a property division.”
On
February 25 the trial court entered an order denying Michael’s
motion.
Michael nevertheless continued to refuse to pay his
maintenance obligation, and on June 2, 1998, Patricia filed a
motion to reduce the arrearage to a lump sum judgment; on June 5
the trial court granted the motion and ordered that the arrest
warrant against Michael should continue in full force and effect.
Also on June 5, Michael filed another motion to terminate
maintenance.
On July 23, the trial court denied the motion.
On
August 12, Michael paid a portion of the outstanding arrearage
sufficient to purge himself of contempt; however, on August 17,
Patricia filed a motion to hold Michael in contempt for failure
to pay more recent installments of the maintenance obligation.
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On October 13, 1998, Michael filed yet another motion
to terminate maintenance.
Hearings before the Commissioner were
conducted on October 23 and October 30.
Commissioner entered his report.
On December 4, 1998, the
The Commissioner recommended
that Michael’s request to terminate maintenance be denied and
that the future maintenance obligation be reduced to a lump sum
judgment of $79,275.00 based upon the remaining 75 month term of
the award at $1,057.00 per month.
the report.
Both sides filed exceptions to
On January 13, 1999, the trial court entered an
order adopting the Commissioner’s report except as to the amount
of the lump sum judgment.
argument.
That issue was reserved for further
or vacate.
On January 22, Michael filed a motion to alter, amend,
On February 19, 1999, the trial court entered an
order reducing the lump sum judgment award to $71,000.00 and
overruling Michael’s motion to alter, amend, or vacate.
This
appeal followed.
Michael’s brief is somewhat disorganized; however, he
appears to make four arguments:
(1) that Patricia was a third-
party beneficiary of the consulting contract and, because the
right of recission was reserved in the contract, the contract
could be canceled without Patricia’s consent; (2) Michael was
justified in canceling the contract because the annual cost of
his liability insurance, which he was required to maintain under
the contract, was greater than his compensation under the
agreement; (3) the Commissioner improperly applied “dissipation
of asset” principles to the cancellation of the consulting
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agreement; and (4) the Commissioner should have disqualified
himself.
Michael contends that pursuant to Rhodes v. Rhodes,
Ky., 266 S.W.2d 790 (1953), the consulting agreement could be
rescinded without the consent of Patricia because, though she was
a third party beneficiary under the contract, the right of
recission had been reserved in the contract.
relevant to this situation.
Rhodes is not
The consulting contract was not
simply an arms length contract negotiated between Michael and the
company.
Rather, the consulting contract was an integral part of
the compensation Michael was to receive for the sale of his stock
in the company to his son Richard.
Payment for the stock was
structured as a consulting contract so the company could reflect
a deduction for the payment as an expense and thereby lower its
taxes.
The stock was a marital asset subject to division and, it
follows, the consulting contract was a marital asset.
Hence
Patricia had a fifty percent marital interest in the consulting
contract and was not merely a third party beneficiary of the
contract.
We further note that Patricia originally sought to have
the consulting contract assigned exclusively to Michael and to be
assigned other assets as an off-set.
Michael objected to this
and, because payments under the contract appeared to be earned
income to Michael, he stood to be responsible for all of the
taxes paid under the contract.
Moreover, at the time of the
property distribution the company was experiencing financial
problems.
With the agreement of Michael, the distribution of
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Patricia’s marital portion of the consulting contract was
structured as maintenance, thereby distributing the tax burden
equally between the parties and, similarly, distributing the risk
of business failure.
Michael agreed to the structuring of the
distribution of this marital asset in this manner in the first
place, and his Rhodes argument mischaracterizes the nature of the
consulting agreement.
Next, Michael contends that he was justified in
canceling the contract because the annual cost of his liability
insurance, which he was required to maintain under the contract,
was greater than his compensation under the agreement.
Paragraph
one of the contract provided that “[w]hile this Agreement is in
effect, the Consultant shall maintain comprehensive general
liability insurance....”
At the October 1998 hearings, Michael
presented the testimony of an insurance agent who testified that
the minimum insurance premium available to Michael to meet the
insurance standard under the contract was $36,000.00 annually.
Under the consulting contract Michael was to receive $25,326.00
annually.
In his December 4, 1998, report, the Commissioner
stated that he “does not believe [Michael] when he says that the
‘CONSULTING AGREEMENT’ was terminated because he could not afford
to purchase liability insurance.”
We must accept this assessment
of Michael’s credibility unless it was clearly erroneous.
52.01; Reichle v. Reichle, Ky., 719 S.W.2d 442 (1986).
CR
The
finding rejecting Michael’s claim that he canceled the contract
because of the cost of liability insurance was not clearly
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erroneous.
In the 1997 proceedings, the evidence was that the
company terminated the consulting agreement because it was
dissatisfied with Michael’s performance as a consultant.
Further, following the termination of the consulting contract,
Michael and his new wife set up what the Commissioner
characterized as a “dummy corporation” and continued to perform
the same consulting services through that corporation.
Considering these factors, the Commissioner, and the trial court,
were justified in concluding that Michael had “very little
credibility” and that “this latest scenario is . . . another
attempt by [Michael] to sneak out from underneath his obligation
to pay to [Patricia] one-half (½) the value of the monies which
he received from the sale of [the company].”
Next, Michael contends that the Commissioner improperly
applied “dissipation of asset” principles to the cancellation of
the consulting agreement.
In his December 4, 1998, report the
Commissioner stated that “[i]n the mind of the Master
Commissioner, [Michael] has ‘dissipated’ a substantial marital
asset for which he can be held accountable,” citing Robinette v.
Robinette, Ky. App., 736 S.W.2d 351 (1987), and Barriger v.
Barriger, Ky., 514 S.W.2d 114 (1974). Generally, a trial court
may find dissipation when marital property is expended (1) during
a period when there is a separation or dissolution impending;
and (2) where there is a clear showing of intent to deprive one's
spouse of her proportionate share of the marital property.
Brosick v. Brosick, Ky. App., 974 S.W.2d 498, 500 (1998).
Michael apparently objects to characterizing his actions as
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“dissipation” because the termination of the contract did not
occur “during a period when there was a separation or dissolution
impending.”
The trial court determined that Michael had
fraudulently terminated the consulting contract, a marital asset,
in an attempt to avoid paying Patricia her marital interest in
the contract.
There was a clear showing of intent to deprive
Patricia of her proportionate share of the marital proceeds from
the sale of the stock in the company.
Though the divorce was
final, and the cancellation of the contract did not occur during
a period when there was a separation or dissolution impending, it
was nevertheless appropriate, or else harmless error, for the
Commissioner to refer to Michael’s fraudulent termination of the
contract as “dissipation.”
In conjunction with his dissipation argument, Michael
argues that it was improper to structure the property
distribution as maintenance.
However, this was done at Michael’s
instigation and, moreover, the order establishing that structure
was entered on May 7, 1997.
Michael did not appeal that order
and we may not now review the merits of the structuring of the
property distribution as maintenance.
CR 73.02.
Finally, Michael contends that the Commissioner should
have disqualified himself from hearing the case.
Michael failed
to raise this issue to the trial court and the issue is
unpreserved.
Further, we discern no evidence of prejudice by the
Commissioner.
The judgment of the Campbell Circuit Court is affirmed.
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ALL CONCUR.
BRIEF FOR APPELLANT:
BRIEF FOR APPELLEE:
R. Barry Wehrman
Covington, Kentucky
W. Robert Lotz
Covington, Kentucky
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