JAMES LEE HOLMAN v. SUE RODES HOLMAN
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RENDERED: JULY 9, 2004; 10:00 a.m.
NOT TO BE PUBLISHED
Commonwealth of Kentucky
Court of Appeals
NO. 2003-CA-001727-MR
JAMES LEE HOLMAN
v.
APPELLANT
APPEAL FROM FAYETTE CIRCUIT COURT
HONORABLE GARY D. PAYNE, JUDGE
ACTION NO. 95-CI-02775
SUE RODES HOLMAN
APPELLEE
OPINION
REVERSING AND REMANDING
** ** ** ** ** ** ** **
BEFORE: BUCKINGHAM, DYCHE, AND TAYLOR, JUDGES.
BUCKINGHAM, JUDGE:
James Lee Holman appeals from an order of
the Fayette Circuit Court denying his motion to require Sue
Rodes Holman to make restitution to him for amounts paid to her
as a result of an erroneous determination by the circuit court
that a portion of James’ disability retirement income
constituted marital property.
The trial court’s determination
was later overturned by the Kentucky Supreme Court, and James
seeks to recover amounts paid to Sue during the pendancy of his
appeal of the circuit court’s order.
The trial court off-set
any restitution owed by Sue to James by allocating additional
marital property to Sue.
For the reasons stated below we
reverse and remand.
On March 11, 1974, James began employment as a
firefighter with the Lexington-Fayette Urban County Government
(LFUCG).
The parties were married on May 8, 1981.
On February
11, 1987, James was forced to retire from his firefighter
employment as a result of a total and permanent occupational
disability.
On August 29, 1995, Sue filed a petition for
dissolution of marriage in Fayette Circuit Court.
The parties’ divorce was made final on August 26,
1996.
James was thus employed as a firefighter for thirteen
years, with six of those years taking place during the parties’
marriage.
Prior to the finalization of their divorce the parties
entered into a separation agreement which resolved all issues
relating to child custody, property distribution, maintenance,
and child support with the exception of whether Holman’s
disability pension was marital or nonmarital.
With regard to
this issue the agreement stated “The issue of the marital or
nonmarital character of the Husband’s pension is reserved for
further decision by the Court.”
2
Holman retired from the fire department with a total
and permanent disability in February 1987.
Had he retired on
that date absent the disability, he would have been entitled
only to reimbursement for his contributions into the retirement
system.
Those contributions amounted to $18,065.40 as of his
retirement, of which $11,206.40 was contributed during his
marriage to the appellee.
James agreed that the $11,206.40
contributed to the retirement system during the marriage was
marital property; however, he maintained that the ongoing
monthly disability retirement payments were nonmarital.
During
this time James was receiving approximately $1,700.00 per month
in disability retirement payments.
On February 25, 1997, the trial court entered an
opinion holding that the disability retirement payments were
marital property.
On March 24, 1997, the trial court entered an
order holding that an amount equal to 6/13 of the disability
retirement benefits was to be deemed as marital property and
that the appellee was entitled to one-half of that amount,
retroactive to September 1, 1996.
Pursuant to the order James
was required to pay Sue $3,236.15 representing the payments
which had accrued from September 1, 1996, through March 1997,
and to make monthly payments thereafter of $468.87, which amount
represented one-half of 6/13 of the then total monthly
disability retirement payment of $2,031.79.
3
James subsequently appealed the trial court’s
determination to this Court.
On December 4, 1998, this Court
entered an opinion affirming the trial court’s holding that the
disability payments were marital property.
See Case No. 97-CA-
000736-MR.
The Supreme Court subsequently accepted discretionary
review.
On June 13, 2002, the Supreme Court rendered an opinion
holding that Holman’s disability retirement benefits were not
marital property.
(2002).
See Holman v. Holman, Ky., 84 S.W.3d 903
The Supreme Court remanded the case to the trial court
for it to assign James’ disability retirement benefits to him as
his nonmarital property and to reconsider the previous marital
property distribution.
During the appeals process James complied with the
trial court’s order to share his disability payments with the
appellee.
However, after the Supreme Court reversed the trial
court’s decision, on February 20, 2003, James filed a motion for
the relief provided under the Supreme Court’s opinion, and also
moved for restitution of the principal sum of $31,414.29 paid to
the appellee during the appeals process.
James also requested
prejudgment and postjudgment interest thereon.
On August 14, 2003, the trial court entered an order
denying James’ motion for restitution.
4
This appeal followed.
Holman contends that the trial court erred when it
denied his motion to require the appellee to pay him restitution
for the portion of his disability retirement benefits he paid to
Sue while he appealed the trial court’s determination that those
amounts were marital property.
“[T]he law is well settled that, if an appellate court
reverses a judgment, the party against whom the judgment
originally was entered, and who thereafter satisfied it, is
entitled to restitution[.]”
Fitch v. Kentucky-Tennessee Light &
Power Co., 308 Ky. 652, 215 S.W.2d 91, 92 (1948).
It is an
accepted principle that money paid in obedience to a judgment
that is later set aside must be repaid.
Alexander Hamilton Life
Ins. Co. of America v. Lewis, Ky., 550 S.W.2d 558, 559 (1977)
(citing Fitch v. Kentucky-Tennessee Light & Power Co., 308 Ky.
652, 215 S.W.2d 91, 92 (1948); Turner v. Ewald, 295 Ky. 764, 174
S.W.2d 431, 438 (1943); Drury v. Franke, 247 Ky. 758, 57 S.W.2d
969, 972, 88 A.L.R. 917 (1933); and Morgan v. Hart, 48 Ky. (9
B.Mon.) 79, 80 (1848)).
"A person who has conferred a benefit
upon another in compliance with a judgment . . .
is entitled to
restitution if the judgment is reversed or set aside, unless
restitution would be inequitable.
Restatement, Restitution, § 74).
. . ."
Id. (quoting
The obvious justification for
restitution is that one should not be unjustly enriched at the
expense of another.
Id. (citing Restatement, Restitution, § 1).
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"The right of a person to restitution from another
because of a benefit received is terminated or diminished if,
after the receipt of the benefit, circumstances have so changed
that it would be inequitable to require the other to make full
restitution."
559.
Alexander Hamilton Life Ins. Co., 558 S.W.2d at
However, when the party who received the money by
authority of the judgment has spent some or all of it at her own
volition and for her own ends, equity does not diminish her
accountability to make restitution.
Id.
To summarize the foregoing, James was entitled to
restitution for the sums he paid to Sue during the pendancy of
the first appeal unless circumstances had so changed since James
began making the payments that it would be inequitable to
require Sue to make restitution.
The trial court did not make a finding that
circumstances had so changed that it would be inequitable to
require Sue to make restitution.
Rather, the trial court
determined that it would be unfair to require Sue to make
restitution because it had originally determined that the
payments were marital property “based upon a sense of equitable
distribution.”
Specifically the trial court’s August 14, 2003,
order the trial court stated as follows:
The Court has reviewed the decision of the
Supreme Court and has considered the
arguments presented by the parties. The
6
Court thus notes that per the ruling of the
higher court the Respondent’s disability
benefits are his nonmarital property. In
theory the Respondent is entitled to
restitution. However, when this Court ruled
that Petitioner was entitled to a portion of
the disability benefits it believed it was
making an equitable distribution given the
years of the marriage and the circumstances
of the parties, including the terms agreed
to by the parties. This Court does not feel
that Petitioner should be ordered to
actually make restitution to the tune of
$34,650.44 To require that of Petitioner
would not be fair given this Court was
driven in its original decision by a sense
of equitable distribution. It logically
follows that the Respondent’s request for
interest on amounts paid is denied.
The Court believes Petitioner was entitled
to marital property in an amount equal to
$34,650.44. Obviously the sum cannot be
deemed to have come from the disability
payments, but the Court does reallocate the
same amount from Respondent’s marital
property.
Inequity justifying excusing a party from making
restitution must be based upon a change in circumstances to the
extent that it would be inequitable to require the party from
making restitution.
Alexander Hamilton Life Ins. Co., supra.
In excusing Sue from making restitution the trial court instead
relied upon the motivation behind its original decision, i.e.,
its “sense of equitable distribution,” notwithstanding that this
which was later determined by the Supreme Court to be erroneous.
The trial court’s denial of restitution was not based upon a
change of circumstances at all.
We are not persuaded that the
7
trial court’s reliance upon the motivations behind its original
order – an order which was later overturned - satisfies the test
for changed circumstances so as to make restitution inequitable.
Sue contends that it would be inequitable to require
her to make restitution because she relied upon established law
and the trial court’s order holding that the disability payments
were marital property, and that the existing law was
significantly changed by the Supreme Court’s decision in Holman
v. Holman, supra.
Sue alleges that she had no reasonable
expectation that the Supreme Court would create new law
applicable to firefighters disability retirement benefits.
We disagree that the Supreme Court’s decision in this
case amounted to a change in circumstances so as to make
restitution inequitable.
We interpret the change in
circumstances rule identified in Alexander Hamilton Life Ins.
Co., supra., as principally referring to changes in a parties’
personal circumstances.
In addition, the decision in Holman
addressed an issue of first impression and did not, as
characterized by the appellee, overturn “established law.”
Further, the parties’ settlement agreement specifically deferred
the determination of the status of the disability payments to
the courts, and thus an adverse decision by the courts could
have been reasonably anticipated.
As such, we do not believe
that the Supreme Court’s decision in this case qualifies as a
8
change in circumstances which would excuse Sue from her
obligation to make restitution.
Sue also argues that restitution would be inequitable
because the amounts she received from James were used to assist
in paying her monthly living expenses, as well as the continuing
legal fees incurred as a result of James’ appeals.
The appellee
contends that she relied on the judgment of the trial court to
determine the nature of the disability retirement benefits and
therefore presumed she could appropriately utilize the funds
awarded to her to support herself and her children in the manner
similar to what was enjoyed in the marriage.
As previously
noted, when the party who received the money by authority of the
judgment has spent some or all of it at her own volition and for
her own ends, equity does not diminish her accountability to
make restitution.
at 559.
Alexander Hamilton Life Ins. Co., 558 S.W.2d
Pursuant to this rule, we do not believe the fact that
Sue spent the money for living expense and legal fees excuses
her from her obligation to make restitution.
Sue also appears to argue that James’ failure to post
a supercedeas bond somehow extinguishes his entitlement to
restitution; however, we believe this argument is without merit.
There is an additional reason that the trial court’s
order erroneously failed to award James restitution.
The order,
in effect, “awarded” James restitution, but at the same time
9
reconsidered the original property award and offset James’
restitution award by an equivalent additional award of marital
property to Sue.
From this perspective the real issue is not
whether James is entitled to restitution – under the trial
court’s order he “received” that – but, rather, whether it was
proper for the trial court to reopen the original marital
property distribution award and award additional sums to Sue.
The Supreme Court’s June 13, 2002, opinion concludes
as follows:
“For the reasons mentioned, we reverse the decision
of the Court of Appeals and remand to the trial court for it to
assign Appellant’s LFUCG disability benefits to him as his
nonmarital property and to reconsider its marital property
distribution.” (Emphasis added).
Hence, the trial court, upon
remand, was under a mandate by the Supreme Court to, in
conjunction with assigning James his disability retirement
benefits as nonmarital property, specifically reconsider the
previous marital property distribution.
The original marital property distribution was
pursuant to a separation agreement.
While the trial court was
under an obligation to reconsider the marital property
distribution upon remand, we believe the Supreme Court intended
the trial court to carry out that obligation within the normal
constraints imposed by a separation agreement.
10
KRS 403.180(2) provides that the terms of a separation
agreement, "except those providing for the custody, support, and
visitation of children, are binding upon the court unless it
finds, after considering the economic circumstances of the
parties and any other relevant evidence produced by the parties,
... that the separation agreement is unconscionable."
"Unconscionable" has been defined as "manifestly unfair or
inequitable." Wilhoit v. Wilhoit, Ky., 506 S.W.2d 511, 513
(1974).
A separation agreement which was originally determined
not to be unconscionable may later be modified if due a change
in circumstances the agreement has become unconscionable.
Peterson v. Peterson, Ky. App., 583 S.W.2d 707 (1979).
However,
the party challenging the agreement as unconscionable has the
burden of proof.
Peterson, at 711..
The Separation Agreement executed by the parties dated
August 23, 1996, was a comprehensive instrument addressing in
detail all issues concerned in the dissolution proceeding.
agreement consists of 29 numbered paragraphs, along with
The
numerous subparagraphs, which address in great detail issues
relating to child custody and support; marital property;
nonmarital property; debts; and maintenance.
The paragraphs relevant to this proceeding are as
follows:
11
15. The issue of the marital or nonmarital
character of the Husband’s pension is
reserved for further decision by the Court.
. . . .
26. The foregoing constitutes a full,
complete, and final settlement of all
property rights, both present and future,
and the same shall be fixed and irrevocable
upon approval by the Court. This Agreement
shall be incorporated into and made a part
of any Decree entered herein, and each party
will assume his or her existing and future
obligations, except as may be otherwise
provided herein, and, except as provided
herein, shall hold the other party free from
any hereinafter incurred obligations.
. . . .
27. This Agreement shall be incorporated by
reference in any Decree which may be entered
in an action between the parties, and shall
be enforceable by any and all means legally
available to said Court, including contempt
proceedings.
The final decree was entered on August 26, 1996.
Paragraph four of the decree stated as follows:
The Settlement Agreement entered into by and
between the parties on August 23, 1996 is
found not to be unconscionable and is hereby
approved and incorporated into this Decree
of Dissolution as if set out in full length
herein. Each party is hereby ordered to
comply with the terms and conditions set out
therein. (Emphasis added).
Hence, the original separation agreement, which
specifically deferred to the courts on the issue of the
marital/nonmarital status of James’ disability retirement
12
income, was originally found by the trial court not to be
unconscionable.
In its reconsideration of the original marital
property distribution as provided in the separation agreement,
the trial court did not purport to make a finding that due to a
change in circumstances the agreement had become unconscionable.
Absent such a finding, the trial court was bound by the parties’
separation agreement.
KRS 403.180(2).
As such the trial court
erroneously reallocated marital property to Sue to offset the
restitution she owed to James.
Further, a review of the separation agreement
demonstrates that it was not so manifestly unfair, inequitable,
and lopsided as to be unconscionable.
As his division of the marital property James received
his sole-proprietor heating, air conditioning and plumbing
business, from which he derives approximately $75,000.00 per
year in income; a 1995 Cadillac; three real estate properties
owned by the parties; the life insurance and life insurance cash
surrender values on insurance insuring the life of James;
personal property in his possession; bank accounts in James’
sole name; and a “street rod” and motorcycle.
As her division of the marital property Sue received
the marital residence; a 1995 Cadillac; the proceeds from the
sale of Florida real estate owned by the parties; Sue and James’
13
individual retirement accounts; the items of personal property
in her possession; and all bank accounts in the wife’s sole
name; the sum of $269,221.00 paid in equal monthly payments over
a period of ten years; and the parties’ membership in the
Greenbriar Country Club.
Further, pursuant to the separation agreement James
agreed to pay Sue maintenance consisting of four payments of
$1,300.00; 12 payments of $1,500.00; 12 payments of $1,400.00;
12 payments of $1,200.00; 12 payments of $1,100.00; 12 payments
of $950.00; 12 payments of $800.00; 12 payments of $600.00; 12
payments of $400.00; 12 payments of $300.00; and 8 payments of
$100.00.
The foregoing terms were originally determined not to
be unconscionable and the Supreme Court’s resolution of the
disability payment issue (which the agreement specifically
deferred to the courts) adversely to Sue was not a change in
circumstances which would render the agreement unconscionable.
No other changes in circumstances relevant to this issue have
been identified by the appellee.
In summary, while the trial court was required under
the Supreme Court’s mandate to reconsider the marital property
distribution, because the separation agreement is not
unconscionable the trial court was bound by the agreement, and
it was error to reopen the settlement agreement and reallocate
14
the original marital property distribution for the purpose of
off-setting the restitution owed by the appellee to the
appellant.
We accordingly reverse and remand the case for entry
of an order granting the appellant restitution for amounts paid
to Sue during the pendancy of the first appeal.
James also alleges that he is entitled to prejudgment
and postjudgment interest on the restitution owed to him by the
appellee.
"The determination as to whether or not to award
prejudgment interest is based upon the foundation of equity and
justice.
It is a determination to be made by the trial court
and to be disturbed by an appellate court only upon a showing of
abuse of discretion."
Church and Mullins Corp. v. Bethlehem
Minerals Company, Ky., 887 S.W.2d 321, 325 (1994).
Kentucky
Revised Statute (KRS) 360.040 provides that a judgment shall
bear twelve percent (12%) interest compounded annually from its
date.
Thus the awarding of prejudgment interest is
discretionary with the trial court whereas postjudgment interest
is required under KRS 360.040.
Because of the trial court’s disposition of the case
it did not address the appellant’s request for interest on the
merits.
On remand the trial court should also address and rule
on the appellant’s request for prejudgment and postjudgment
interest.
15
For the foregoing reasons the judgment of the Fayette
Circuit Court is reversed and remanded for additional
proceedings consistent with this opinion.
ALL CONCUR.
BRIEF FOR APPELLANT:
BRIEF FOR APPELLEE:
Catesby Woodford
Susan Y.W. Chun
Lexington, Kentucky
Martha A. Rosenberg
Lexington, Kentucky
16
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