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Borley v. Smith

May 11, 2010

DEBRA A. BORLEY, PLAINTIFF-RESPONDENT-CROSS-APPELLANT,
v.
KEVIN D. SMITH, DEFENDANT-APPELLANT-CROSS-RESPONDENT.



Appeal from the District Court of the Fourth Judicial District of the State of Idaho, Ada County. The Honorable Cheri C. Copsey, District Judge; Honorable Terry R. McDaniel, Magistrate Judge.

The opinion of the court was delivered by: J. Jones, Justice.

2010 Opinion No. 52

The district court's decision is affirmed in part, reversed in part, and the case is remanded for proceedings consistent with this opinion.

Kevin D. Smith appeals the district court's decision concerning Debra A. Borley's motion to divide certain assets omitted from the distribution of the marital estate. We affirm in part, reverse in part, and remand the case for proceedings consistent with this opinion.

I. Facts and Procedural History

Smith and Borley were married on August 1, 1988. Smith started working as a United Airlines (United) pilot in 1990. In 1992, United filed for bankruptcy protection. As a result, United pilots lost their Defined Benefits Retirement Plan (A Plan), but were otherwise compensated by insurance payments through the Pension Benefit Guaranty Corporation (PBGC) and certain convertible notes as follows:

7. Convertible Notes. In the event that the A Plan is terminated pursuant to 29 U.S.C. § 1341 or § 1342 following judicial approval of such termination, the Revised 2003 Pilot Agreement and the Plan of Reorganization shall provide for the issuance of $550 Million of UAL convertible notes....

In order for United pilots to receive the convertible notes, they had to be qualified members of the A Plan on December 30, 2004, and be employed by United on February 1, 2006. In determining a pilot's share of the convertible notes, United took into account each pilot's age, years left to retirement (reached at age sixty), and seniority. Because Smith was a qualified member of the A Plan on December 30, 2004, and was still employed with United on February 1, 2006, he received $30,707.36 in convertible notes in February of 2006 and $25,229.84 in March of 2006.

Additionally, pursuant to a Revised 2003 Pilot Agreement, United pilots were to receive stock allocations. These stock allocations attempted to compensate pilots for the work rules, compensation, and work benefits that each pilot lost as a result of restructuring their collective bargaining agreement, which was to run from May 1, 2003, through December 31, 2009. To be eligible for the stock allocations, United pilots had to be employed by United on May 1, 2003, and to receive the stock allocations, they had to be employed by United on February 1, 2006. Because Smith was employed by United on May 1, 2003, and again on February 1, 2006, he received upwards of 2,022 shares of United stock in February of 2006 valued at approximately $27 per share.

Borley and Smith were divorced on September 22, 2005, pursuant to a Judgment and Decree of Divorce. The parties had entered into a Property Settlement Agreement, dated September 15, 2005, (Agreement) and a copy of the same was attached to the Decree. Neither the convertible notes nor the stock allocations were specifically provided for in the Agreement. However, the Agreement divided Smith's retirement benefits as follows:

4. DIVISION OF RETIREMENT BENEFITS. Husband has been employed by United Airlines and has a pension, either with United Airlines, or now with Pension Benefit Guarantee Association. Wife shall receive fifty percent (50%) of the benefit accumulated by Husband during the marriage to be set over to her pursuant to a Qualified Domestic Relations Order.

After the Decree was entered and the Agreement was approved by the magistrate court, Borley filed a ―Motion to Divide Omitted Asset‖ in which she asked the court to divide both the convertible notes and the stock allocations obtained by Smith in February and March of 2006.

Smith filed an answer and, after numerous procedural maneuvers, the court decided that it would treat the case as one having been submitted on cross-motions for summary judgment. The court required the parties to agree on a set of stipulated facts, and determined that it would consider the parties' simultaneous briefs, affidavits, excerpts from depositions, and documents received through discovery. In Smith's memorandum in support of summary judgment, he argued that: (1) the magistrate court did not have jurisdiction to divide the assets because the Agreement was not merged into the Decree; (2) Borley's claim was barred by res judicata; (3) the convertible notes and stock allocations were his sole and separate property; and (4) the convertible notes and stock allocations were not omitted assets because they were provided for in the Agreement. In response, Borley argued that: (1) the Agreement was merged into the Decree; (2) the magistrate court had equitable jurisdiction to hear the claim; (3) the convertible notes and stock allocations were owned by the community; and (4) the convertible notes and stock allocations were omitted assets.

In its memorandum decision, the magistrate court held that: (1) it had jurisdiction over Borley's motion because the Agreement was merged into the Decree; (2) res judicata did not bar the action because the court had equitable jurisdiction; (3) the convertible notes were not omitted assets, but rather community property subject to division under Paragraph 4 of the Agreement to be calculated by the time rule method; and (4) the stock allocations were not omitted assets because they were known at the time of the execution of the Agreement and thus were Smith's sole and separate property. The magistrate court entered an order granting Borley's motion in part, denying it in part, and denying an award of attorney fees and costs.

Smith appealed the magistrate's order to the district court, and Borley cross-appealed the magistrate's decision on attorney fees and costs. The district court affirmed the magistrate's findings that: (1) the Agreement was merged into the Decree, providing the court with jurisdiction: (2) the court had equitable jurisdiction to modify the Decree; and (3) a portion of the convertible notes were community property subject to division under Paragraph 4 of the Agreement. However, the district court ruled that the magistrate court erred in applying the time rule method to the convertible notes, holding that the notes must be divided under the accrued benefit method. Additionally, the district court reversed the magistrate court's determination that the stock allocations were Smith's separate property, finding instead that the stock allocations were omitted community assets not covered by the terms of the Agreement. Lastly, the district court ruled that neither party prevailed for purposes of attorney fees and costs. Smith then appealed to this Court, and Borley cross-appealed on the issue of attorney fees and costs.

II. Issues Presented on Appeal

The following issues are presented on appeal: (1) whether the Agreement was merged into the Decree; (2) whether the magistrate court had jurisdiction to enforce the terms of the Agreement; (3) whether the community has an interest in the convertible notes or stock allocations; (4) whether any community interest in the convertible notes or stock allocations was divided under the Agreement; and (5) whether either party is entitled to attorney fees on appeal.

III.

A. Standard of Review

On appeal of a decision rendered by a district court acting in its appellate capacity, we directly review the district court's decision to determine whether it correctly decided the issues presented to it on appeal. Idaho Dept. of Health and Welfare v. Doe, 148 Idaho 124, 126, 219 P.3d 448, 450 (2009).

When this Court reviews a grant of summary judgment, it does so under the same standards employed by the district court. Boise Tower Assocs. v. Hogland, 147 Idaho 774, 779, 215 P.3d 494, 499 (2009). ―The fact that the parties have filed cross-motions for summary judgment does not change the applicable standard of review, and this Court must evaluate each party's motion on its own merits.‖ Intermountain Forest Mgmt., Inc. v. La. Pac. Corp., 136 Idaho 233, 235, 31 P.3d 921, 923 (2001). Summary judgment is proper ―if the pleadings, depositions, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law.‖ Idaho R. Civ. P. 56(c). Where the case will be tried without a jury, ―the trial court as the trier of fact is entitled to arrive at the most probable inferences based upon the undisputed evidence properly before it and grant the summary judgment despite the possibility of conflicting inferences.‖ P.O. Ventures, Inc. v. Loucks Family Irrev. Trust, 144 Idaho 233, 237, 159 P.3d 870, 874 (2007). This Court freely reviews the entire record that was before the district court to determine whether either side was entitled to judgment as a matter of law and whether inferences drawn by the district court are reasonably supported by the record. Id.

B. Merger

Smith first argues that the magistrate court did not have jurisdiction over Borley's motion to divide any omitted assets because the Agreement was not merged into the Decree. Smith argues that the language of the Decree unambiguously demonstrates the parties' intent that the Agreement was not to be merged, thus leaving the court without jurisdiction to modify the Agreement. Borley, on the other hand, argues that when the language of the Agreement is read together with the language of the Decree, the intent of the parties regarding merger is unclear, and a presumption arises that the agreement is merged into the Decree. Consequently, she argues, the court has jurisdiction to divide any omitted assets.

A court has jurisdiction to modify the terms of a property settlement agreement only if the agreement is merged into the judgment and decree of divorce. Roesbery v. Roesbery, 88 Idaho 514, 521, 401 P.2d 805, 809 (1965). We have previously held that the question of merger or non-merger is determined by ascertaining the intent of the parties at the time of the divorce. Compton v. Compton, 101 Idaho 328, 332, 612 P.2d 1175, 1179 (1980). We hold that the Agreement was not merged into the Decree. In reaching this result, we expressly disaffirm the proposition that the parties' intent with respect to merger is established by looking at the language of both the decree of divorce and the property settlement agreement without first finding that the language in the decree is ambiguous. The proper analysis is to look first only to the four corners of the divorce decree. If the language of the decree clearly and unambiguously holds the property settlement agreement is not merged, the inquiry is at an end. The court's inquiry will move beyond the four corners of the decree to the property settlement agreement only when the decree is ambiguous and reasonably susceptible to conflicting interpretations.

An important principle drives this holding-private stipulations cannot circumvent court orders. Even when a contractual property settlement agreement is approved by a court, the court still retains the prerogative to accept or reject the merger of the property settlement agreement with the divorce decree. If the court's decree is unambiguous, but mistaken, with respect to merger, the parties have an inherent safeguard in the form of Idaho Rule of Civil Procedure 60(a), pursuant to which a party may request the court to correct a clerical mistake.*fn1 Idaho R. Civ. P. 60(a). With this protection already in place, there is no reason for a court to consider the language of a property settlement agreement when there is an unambiguous decree stating that the agreement is not merged. Neither party moved to correct the Decree here, so we must assume no mistake was made.

In this case, the Decree unambiguously states that the Agreement ―is not merged nor incorporated‖ into the Decree. Because the magistrate court's holding with respect to merger is clear and unambiguous, this Court will give effect to it. Therefore, there was no merger in this case, and the Agreement did not become an operative part of the Decree. Consequently, the court was without jurisdiction to modify the terms of the Agreement.

C. Jurisdiction to Enforce the Agreement

Smith contends that the magistrate court did not have jurisdiction to enforce the terms of the Agreement because (1) the Agreement was not merged into the Decree and (2) because the assets were divided pursuant to the terms of the Agreement. Smith is quite correct that once the Court determines the Agreement was not merged into the Decree, the court is without jurisdiction to modify the terms of the Agreement. In other words, ―[i]n the absence of an appeal from an original decree of divorce the property divisions portions of that decree are final, res judicata, and no jurisdiction exists to modify property provisions of a divorce decree.‖ McBride v. McBride, 112 Idaho 959, 961, 739 P.2d 258, 260 (1987)*fn2. However, this is an entirely separate inquiry from whether the court has jurisdiction to enforce the terms of the Agreement.

In this case, Borley originally entitled her action as a ―Motion to Divide Omitted Asset.‖ However, it quickly became apparent from Borley's arguments in front of the magistrate court that she was arguing either (1) that the assets were omitted from the Agreement or (2) that the assets should have been divided pursuant to Section 4 of the Agreement. Thus, despite the fact that the motion was presented solely as a motion to divide an omitted asset, as in any civil case, a mislabeled claim may be treated according to its substance. Carroll v. MBNA America Bank, 148 Idaho 261, 268, 220 P.3d 1080, 1087 (2009). Additionally, both the magistrate court and the district court, at least in part, analyzed the action as arising out of the contract between the parties. Neither Smith nor Borley objected to the magistrate's treatment of the case as arising out of the Agreement.

In its Decree, the magistrate court specifically approved the Agreement. It certainly had the jurisdiction to do so under Idaho Code section 32-713, which provides that the court, in rendering a decree of divorce, must make an appropriate order for the disposition of the community property. The court has the power under Idaho Code sections 1-1603 and 1-1901, to enforce its orders. In this case, because we find that the assets in question―the convertible notes and stock allocations―were community property at the time of the divorce and divided pursuant to the Agreement, the magistrate court had jurisdiction to interpret and enforce the terms of the Agreement. This case, like Spencer, does not involve the situation where assets were not encompassed within the order dividing the community property, necessitating the institution of the separate contract action, 115 Idaho at 344, 766 P.2d at 1225. Here, the thrust of the inquiry below was primarily directed toward interpreting the court-approved Agreement to determine whether the assets in question were divided therein. We have found that to be the case so there is no need for the parties to seek relief in a separate contract action.

D. Status of the Notes and Stock

We next consider whether the parties had a community interest in the convertible notes and/or stock allocations and, if so, whether that community interest was divided under the terms of the Agreement. Smith argues that both the stock allocations and the convertible notes were awarded to him as his separate property under Paragraph 13 of the Agreement. Borley, on the other hand, argues that the convertible notes and stock allocations were community property to be shared equally between the parties under Paragraph 4 of the Agreement, or in the alternative, are omitted community assets that were unintentionally left undivided in the Agreement.

When considering the parties' arguments as to the convertible notes, the magistrate court held that the notes were not ―an omitted asset, but rather [were] controlled by paragraph four [of the property settlement agreement] under the division of retirement benefit and specifically under amounts to be received from United Airlines.‖ Thus, the magistrate court recognized that Borley held a community interest in the notes, but ...


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