Opinion
NO. 2011-CA-002149-ME
01-18-2013
JUSTIN R. MORGAN APPELLANT v. PATRICE PERLMAN APPELLEE
Frederic J. Anderson Lexington, Kentucky Elizabeth S. Hughes Lexington, Kentucky
NOT TO BE PUBLISHED
APPEAL FROM FAYETTE CIRCUIT COURT
FAMILY COURT DIVISION
HONORABLE TIMOTHY NEIL PHILPOT, JUDGE
ACTION NO. 03-CI-05279
OPINION
AFFIRMING
BEFORE: NICKELL, TAYLOR, AND VANMETER, JUDGES. TAYLOR, JUDGE: Justin R. Morgan brings this appeal from an October 26, 2011, Order of the Fayette Circuit Court, Family Court Division, denying Morgan's motion to reduce child support and granting Patrice Perlman's motion to adjust the amount of the judgment she received pursuant to the division of marital property. We affirm.
Morgan and Perlman were married on May 29, 1999, and two children were born of the marriage. Morgan was employed as an attorney with a civil practice in Lexington, Kentucky. After the parties married, Perlman worked outside the home briefly; however, by 2001, Perlman was staying home to care for the parties' child/children.
On December 30, 2003, Perlman filed a Petition for Dissolution of Marriage in the Fayette Circuit Court, Family Court Division. Following a brief period of reconciliation in 2004, the parties resumed the dissolution proceeding. By order entered January 18, 2006, Perlman was granted sole custody of the parties' children, and Morgan was granted visitation. Morgan was ordered to pay child support of $2,700 per month and to pay maintenance of $2,100 per month until August of 2008. Pursuant to the division of marital property, Morgan was ordered to pay Perlman a lump sum payment of $336,604. Of that amount, Morgan was to pay Perlman the first $100,000 by January 20, 2006; the balance was to be paid in full by June 30, 2006. A Decree of Dissolution of Marriage was subsequently entered January 31, 2006.
On February 24, 2006, Morgan filed an appeal (Appeal No. 2006-CA-000426-MR) to this Court. In the appeal, Morgan argued that the family court committed error by allocating the 2004 tax liability as nonmarital, determining that Morgan dissipated marital assets, finding that Morgan received $10,000 in furniture, and awarding sole custody and attorney's fees to Perlman.
Morgan did not make the $100,000 payment to Perlman by January 20, 2006, as ordered. As a result, Perlman filed a motion to show cause why Morgan should not be held in contempt for failure to pay. On the day of the show cause hearing, Morgan filed a petition for bankruptcy in the United States Bankruptcy Court for the Eastern District of Kentucky. As a result, the automatic stay provisions of 11 U.S.C. § 362 (2010) limited actions to divide marital property pending disposition of the bankruptcy.
Over the next several months, Morgan violated numerous orders of the family court. In March of 2006, Morgan was found to be in contempt of the family court's order to pay child support, maintenance, and the children's health insurance premiums, but no sanctions were imposed. By order entered March 28, 2006, the family court increased Morgan's child support obligation to $3,475 per month and increased Morgan's maintenance obligation to $4,070 per month. Perlman was also ordered to provide health insurance for the children.
On April 11, 2006, the bankruptcy court ordered Morgan to establish an interest bearing escrow account for deposit of any proceeds received from the Zyprexa litigation so as to satisfy the marital property award in favor of Perlman. Then, on May 8, 2006, the bankruptcy court dismissed Morgan's bankruptcy petition which by operation of law extinguished the automatic stay.
Justin Morgan apparently represented several plaintiffs in a civil action that the family court and the parties reference as the "Zyprexa litigation." At some point during the dissolution proceeding, Morgan testified that he expected to receive approximately $1,000,000 in attorney's fees as a result of his representation of clients in the Zyprexa litigation.
On May 31, 2006, the family court found Morgan in contempt for his failure to pay the $100,000 payment toward the lump sum property award to Perlman. Morgan was ordered incarcerated for sixty days or until he purged himself of the contempt by paying the $100,000 to Perlman. An agreed order was subsequently entered suspending Morgan's incarceration pending an anticipated agreement between the parties concerning payment. As the parties never reached an agreement, the family court ordered imposition of the order of incarceration on August 18, 2006. Morgan did not report for the incarceration, so the family court issued an order of arrest and Morgan was subsequently incarcerated.
In order to negotiate his release from incarceration, Morgan executed an "Assignment" in favor of Perlman to secure payment of the $100,000. The Assignment specifically provided that Morgan was assigning his interest in the attorney's fees from the Zyprexa litigation (up to $375,000) to Perlman for satisfaction of the lump sum property award.
On July 25, 2007, Morgan filed a second petition for bankruptcy with the United States Bankruptcy Court for the Eastern District of Kentucky. When Morgan received his attorney's fees from the Zyprexa litigation, the fees were paid into an escrow account and administered by the bankruptcy court. However, the bankruptcy court refused to honor the assignment negotiated between Morgan and Perlman to satisfy the lump sum property award. Perlman did receive payment for her claims of child support and maintenance from the bankruptcy court.
On September 28, 2007, an Opinion was rendered by this Court in Appeal No. 2006-CA-000426-MR, affirming in part, reversing in part, and remanding. Essentially, this Court determined that the 2004 tax liability should have been characterized as marital and Morgan should receive a $10,000 credit for furniture he was assigned in the marital property distribution but did not receive. The Court also decided that the cost of an expert retained by Morgan to value the marital estate and his law practice did not constitute a dissipation of marital assets. The award of sole custody of the children to Perlman and the award of attorney's fees were affirmed. The matter was remanded to the family court for proceedings consistent with the opinion.
On October 30, 2007, the family court issued a show cause order for Morgan's failure to pay child support for August, September, and October. With the bankruptcy court's authorization, Morgan made a payment to Perlman in November of 2007 that brought his child support and maintenance obligations current. Morgan then filed a motion to modify child support and maintenance. A hearing was scheduled for April 17, 2008. Before the hearing, the parties reached an agreement, and the bankruptcy court rendered an Order Approving Compromise. The Order Approving Compromise authorized the following payments to Perlman:
IT IS HEREBY ORDERED AND ADJUDGED, that the terms of the compromise reached between [Morgan] and Ms. Perlman are approved. Ms. Perlman shall receive $44,235.00 from the Zyprexa funds in escrow as payment for the domestic support obligation currently enforceable against [Morgan]. Upon receipt of said payment, [Morgan] shall be deemed current on all domestic support obligations through December 31, 2008. Ms. Perlman will also receive $10,000.00 from the Zyprexa to be applied towards her money judgment, the source of the cash collateral lien.
After said payments, and consistent with the cash collateral order entered November 20, 2007, Ms. Perlman's cash collateral lien on Estate revenue and receivables will increase to $220,560.88. The approximate $16,230.96, remaining in the Zyprexa fund would be held as a reserve until after payment of professional fees to Jerry Anderson and Tammy Farley as outlined in the motion, and payment of outstanding fees to the United States Trustee. After payment of said professional [sic] and fees, the remainder shall be turned over to Ms. Perlman to be applied towards her money judgment.
Over the next few years, Morgan was frequently found to be in arrears with his child support. Relevant to this appeal, on May 31, 2011, Morgan filed a motion to reduce his child support and to receive credit for overpayments of child support. Morgan argued that pursuant to the terms of the Order Approving Compromise, Perlman agreed that child support would revert from $3,475 to the original amount of $1,844 per month as ordered on January 18, 2006. Perlman disagreed and argued that child support should remain at $3,475 per month.
Before a hearing was conducted on Morgan's motion to modify child support, Perlman filed a Motion for Entry of an Amended Judgment. In the motion, Perlman submitted that the family court needed to address issues remanded by the Court of Appeals (Appeal No. 2006-CA-000426-MR) in 2007 and to give credit to Morgan for payments Perlman received directly from him and the bankruptcy court toward satisfaction of the lump sum property award. By order entered October 26, 2011, the family court denied Morgan's motion to modify his child support but granted Perlman's motion to recalculate the lump sum property award to reflect payments thereon already received by Perlman, accrued interest, and various adjustments ordered by the Court of Appeals. This appeal follows.
Morgan contends that the family court erred by denying his motion to decrease child support. He specifically argues that the family court erroneously concluded that the reduction in Morgan's income was not a substantial and continuing change in circumstances. Morgan asserted that his annual income had drastically decreased from an average of $239,000 for 2000-2003 to $90,000 for 2007-2010.
The circuit court determined that the child support guidelines of Kentucky Revised Statutes (KRS) 403.212 are inapplicable as Morgan's monthly income places the parental adjusted gross income above the $15,000 per month limit set forth in the guidelines. See Dudgeon v. Dudgeon, 318 S.W.3d 106 (Ky. App. 2010). Where the child support guidelines are inapplicable, modification of child support is governed by KRS 403.213(1) and simply requires a showing of change in circumstances that is substantial and continuing. Dudgeon, 318 S.W.3d 106. And, the award of child support under KRS 403.213(1) is within the sound discretion of the circuit court.
A review of the record reveals that Morgan's yearly income for 2000-2003 averaged approximately $239,000, and that Morgan's tax returns for 2007-2010 reported approximately $90,000 in yearly income. However, Morgan conceded to the circuit court that he also received $700,000 in attorney's fees from the Zyprexa litigation in 2007 and $600,000 in attorney's fees from another class action lawsuit in 2010. As Morgan had an ongoing bankruptcy action, this income apparently was not reflected on his individual tax returns for such years. The bankruptcy court did release $400,000 of the $600,000 fee to Morgan, and he apparently chose to utilize the funds to start a law firm with his brother rather than satisfy the lump sum property award. Therefore, Morgan's tax returns for 2007-2010, did not reflect Morgan's total income for purposes of computing child support. Accordingly, we do not believe the family court abused its discretion by concluding that Morgan failed to demonstrate a change in circumstances that was substantial and continuing as required for modification of child support under KRS 403.213(1).
Morgan next asserts the family court erred by failing to impute income to Perlman in the computation of his child support obligation. KRS 403.212(2)(d) provides the mechanism for imputing income to a parent who is voluntarily unemployed or underemployed for the purpose of calculating child support. KRS 403.212(2)(d) provides:
If a parent is voluntarily unemployed or underemployed, child support shall be calculated based on a determination of potential income . . . . Potential income shall be determined based upon employment potential and probable earnings level based on the obligor's or obligee's recent work history, occupational qualifications, and prevailing job opportunities and earnings levels in the community. . . .When determining whether a parent is voluntarily unemployed or underemployed, the court must consider the parent's employment potential and probable earnings potential. KRS 403.212(2)(d). In other words, the court must consider the "totality of the circumstances." Polley v. Allen, 132 S.W.3d 223, 227 (Ky. App. 2004). And, whether a parent is voluntarily unemployed or underemployed is a question of fact for the family court to decide. Gossett v. Gossett, 32 S.W.3d 109 (Ky. App. 2000). Such finding will not be disturbed if supported by substantial evidence of a probative value. See id. (citing Kentucky Rules of Civil Procedure 52.01).
In the case sub judice, Perlman only worked outside the home for a brief period after the marriage. Beginning in 2001, Perlman stayed home to care for the parties' children. In fact, Perlman did not complete her bachelor's degree until after the decree of dissolution of marriage was entered in 2006. Upon receiving her degree, Perlman had several interviews but was unsuccessful in her attempt to obtain full-time employment. As a consequence, she accepted a part-time position and began working toward a master's degree. Considering the totality of the circumstances at this time, we believe that the circuit court's finding that Perlman was not voluntarily unemployed or underemployed was supported by substantial evidence of a probative value and thus the family court's findings on this issue are not erroneous.
Morgan next asserts that the family court erred by failing to give him credit for payments previously made toward satisfaction of the lump sum marital property award to Perlman. Morgan specifically argues that he was not given credit for payments made to Perlman on his behalf by the bankruptcy court or for payments Morgan made directly to Perlman between April 2006 and August 2008.
In Perlman's Motion to Amend Judgment, she filed a very detailed summary that outlined all payments made by Morgan on his behalf by the bankruptcy court and all adjustments to the lump sum property award made pursuant to the remand for Court of Appeals case number 2006-CA-000426-MR. Perlman's motion detailed the following:
A. $100,000, representing the first installment of the property division payment, with interest from January 31, 2006, until paid in June, 2007. This amount, including the interest, was satisfied in its entirety by the June 22, 2010[,] payment. PAID.By orders entered October 26, 2011, the family court entered a judgment in accordance with Perlman's calculations in the amount of $359,813.69, plus interest of 12 percent per annum. Having reviewed the record and arguments of both parties, we believe that Morgan properly received credit for all payments made to Perlman and for the adjustments made pursuant to this Court's remand in Appeal No. 2006-CA-000426-MR. In sum, the circuit court did not err by entering a judgment in the amount of $359,813.69 in favor of Perlman.
B. $191,568, representing the balance of the property division payment, as amended by the Court of Appeals, with interest from June 30, 2006, until paid. Two payments have been made to reduce this judgment amount. The first was in the amount of $10,000 on August 12, 2008, and a second was made on June 22, 2010, when the balance of the bankruptcy court payment ($5,273.65) was applied to reduce the judgment amount. The calculation of the amount still due, including interest, is discussed below. NOT PAID.
C. $10,000, representing attorneys' fees awarded in the Original Judgment, plus interest from June 30, 2006[,] through June 22, 2010, when this amount, including the interest, was paid in full. PAID.
D. $23,752.22, representing attorneys' fees awarded on January 8, 2008, plus interest through June 22, 2010. This amount, including the interest, was satisfied in full by the June 22, 2010[,] bankruptcy court payment. PAID.
E. $27,752.22, representing the amount of the April 2, 2007, supplemental judgment attributable to the moneys paid to the IRS when Ms. Perlman sold the house. Interest has accrued from April 2, 2007[,] to present date, and no payments have been made to reduce this amount. NOT PAID.
F. $28,997.50, representing the child support and maintenance arrearage reduced to judgment on April 2, 2007. This amount was paid in full through the bankruptcy court on November 27, 2007, and the interest from April 2, 2007, through the date of that payment was satisfied from the June 22, 2010[,] bankruptcy court payment. PAID.
Thus, only the amounts described in paragraphs B and E above remain due and owing. A calculation of these amounts, reflecting the accrued interest through July 1, 2011, is attached hereto as Exhibit K. In accordance with the foregoing and the calculations reflected by Exhibit K, Ms. Perlman respectfully requests entry of an Amended Judgment in the amount of $359,813.69, plus interest thereon at the rate of 12% per annum until paid.
Morgan finally argues that the family court erred by awarding interest on the award of attorney's fees to Perlman. Morgan specifically argues that KRS 403.220 does not provide for interest on an award of attorney's fees. We disagree.
KRS 403.220 is entitled "Costs of Action and Attorney's Fees" and provides that a court may order a party to pay another party's attorney's fees. While we agree with Morgan that KRS 403.220 does not expressly state that interest on an award of attorney's fees should be allowed, we do not believe KRS 403.220 is dispositive of the issue. Rather, KRS 360.040 governs the award of interest on judgments and provides that "[a] judgment shall bear twelve percent (12%) interest compounded annually." In this case attorney fees were awarded as part of the judgment. The Supreme Court has held that an award of attorney's fees in a dissolution of marriage proceeding should bear interest. Sharp v. Sharp, 516 S.W.2d 875 (Ky. 1974). Thus, we hold that the family court did not err by awarding interest on the award of attorney's fees to Perlman.
For the foregoing reasons, the Order of the Fayette Circuit Court, Family Court Division, is affirmed.
ALL CONCUR. BRIEFS FOR APPELLANT: Frederic J. Anderson
Lexington, Kentucky
BRIEF FOR APPELLEE: Elizabeth S. Hughes
Lexington, Kentucky