Opinion
No. HHD FA 04-0735793S
November 9, 2009
The defendant's pending motions seek to modify the order of unallocated support entered in the judgment of dissolution on October 14, 2005, and to suspend his obligation to pay part of the property settlement in installments. The plaintiff's motions seek to hold the defendant in contempt for falling behind on both sets of obligations. The parties appeared with counsel in April, May, and July of this year for hearing on these motions, at which time the court heard testimony from both parties, a certified public accountant (James Murray) and an attorney (James Byrne) who provide services to the defendant's businesses, and an employee of Farmington Savings Bank (Joanne Cloudier), who brought a loan application made by the defendant's businesses. The court also received briefs from both sides, the last of which was filed on August 18, 2009, and the matter is now ready for decision. After consideration of the evidence and arguments offered by both parties, the defendant's motion #179 to suspend payments of the property settlement is denied; and his motion #180 to modify his support obligation is granted. The plaintiff's amended motion for contempt #183, which had modified her earlier post-judgment motion #181 for contempt, is granted; and her second motion for contempt #182 is denied.
I
FACTS AND PROCEDURAL HISTORY
When the parties' marriage was dissolved, the defendant was a 50 percent co-owner, shareholder, employee and co-president of three family businesses that he and his brother took over from their father and grandfather: Car-Mil Realty, LLC, which owned and managed a building of 68,000 square feet; C M Warehouse, Inc., a warehouse and logistics provider that holds and ships inventory; and Leggett Logistics, Inc., a freight broker. Car-Mil Realty and C M jointly held title to real estate at 95 Leggett Street in East Hartford where the three businesses were located. The defendant's financial affidavit filed at the time of the judgment valued his interest in these businesses at slightly less than $800,000. Article VI of the separation agreement incorporated into the judgment of dissolution provided that "in exchange for [the defendant] retaining his interest" in these businesses he would pay $425,000 to the plaintiff in periodic installments, reduced to $400,000 if fully repaid in less than 12 years. The first installment of $25,000 was due within 30 days of the Judgment; quarterly installments of $2,000 were due thereafter on the first day of each quarter from 2006 to 2009, when the quarterly installments would increase to $5,000 until July 1, 2012, after which monthly installments of $2,500 would be due for the next ten years.
Article VI of the separation agreement further provided that "[i]f the Husband transfers or otherwise divests himself of any of his interest in his commercial real estate (known as 95 Leggett Street a/k/a 95 Rear Street in East Hartford and 81 Leggett Street in East Hartford . . . he shall immediately pay the wife any funds due her at that time so that she is paid in full." As security the judgment ordered the defendant to provide the plaintiff, "both in his personal capacity and in his capacity as an officer/owner of Car-Mil Realty, LLC and C M Warehouse, Inc." with a mortgage deed and note on the real property, but also provided that "if the Husband is unable to secure the funds due wife using his real estate interests as collateral (because the first lienholder/bank will not issue an exception to existing covenants that may prevent using said property as collateral) then the defendant will pledge his existing corporate stock and produce his stock certificates to be held in escrow until his wife is paid in full." The agreement also said that if "real estate, stock, or some other form of property" is "unavailable or insufficient," the court could "as a last resort" order "alimony as a means of securing said obligation." Two years later, on December 10, 2007, the court, Simon, J., approved an "Agreement re Security" which stated that "[t]he defendant represents that because of restrictions placed upon him by the commercial lending institution his business is working with, he is currently unable to execute a Mortgage Deed and Note," and provided that "in order to secure the funds the Defendant owes the Plaintiff by way of a lump sum property settlement," he would pay the plaintiff alimony of $1.00 per year.
Article II of the separation agreement provided that the defendant would pay unallocated support for his ex-wife and their two minor children, then ages nine and 11, in the amount of $1,125 per week for three years and $975 per week for an additional three and one-half years, when the unallocated order would terminate and child support consistent with the child support guidelines would commence. The separation agreement stated that "[s]aid family support . . . is based on the Husband's earning capacity of $115,000. The Wife may earn, from employment income, up to $25,000.00 annually without her income being a factor in any postjudgment modification proceedings."
Although the defendant remained current on his support and property settlement payments until 2009, evidence offered at the hearing before this court showed that by the end of 2007 his brother and he were legitimately worried about the continued viability of C M. Loss of customers, cash flow problems, and changing economic and business conditions were just some of the problems leading to an operating loss that year of almost $123,000 (and net operating losses over the last four years totaling $433,000). Although they had taken out loans to improve the warehouse facility and ameliorate their business position, the warehouse was not at full capacity at the beginning of 2008.
In the fall of 2007 a commercial real estate agent approached the defendant and his brother with a potential buyer of the real property owned by the businesses. Although they had not placed the property on the market, the brothers considered the proposal but initially found the tax and other financial consequences to be prohibitive until they began discussing with their lawyer and accountant the possibility of selling the property under Section 1031 of the Internal Revenue Code, the so-called "like-kind exchange" provision, under which taxes due on sale of certain business or investment property can be deferred if the proceeds are invested in similar property. Advised that a like-kind exchange would provide them with net proceeds of close to 4.2 million dollars, they decided to buy other commercial properties and operate their warehouse business from rented space in the hope of shoring up sagging income from their warehouse and trucking operations with commercial rental income from the new properties. As the defendant credibly explained at the hearing before this court, "it was clear to me . . . that C M was bleeding the company and Car-Mil Realty was thriving . . ." The like-kind exchange, he said, offered "an opportunity to mirror more business like Car-Mil that is actually profitable and try to get more away from the business like C M . . ." From a strictly business viewpoint, there was nothing objectionable or nefarious about the decision of the defendant and his brother to use the tax deferral mechanism of a like-kind exchange under § 1031 in the sale of the Leggett Street properties and the acquisition of other real properties; on these considerations alone, without considering the defendant's obligations under the judgment, it made economic sense. The court finds credible the defendant's testimony that his motive for entering into such a transaction was to secure his own economic future and that of his children and ex-wife.
"[Section 1031 of title 26 of the United States Code] is an exception to the general rule requiring recognition of gain or loss upon the sale or exchange of property. Under 26 U.S.C. § 1031(a), if property held for productive use is exchanged for like-kind property, the taxable gain is not realized until the acquired property is disposed of." Cahaly v. Benistar Property Exchange Trust Co., 268 Conn. 264, 266 n. 2, 842 A.2d 1113 (2004), quoting American International Enterprises, Inc. v. Federal Deposit Ins. Corp., 3 F.3d 1263, 1265 n. 3 (9th Cir. 1993).
On June 26, 2008, the Giordanos sold the real property for $8,379,800, from which the net proceeds, after paying existing mortgages, conveyance taxes, legal and brokers' fees, and other costs of sale, were $4,183,003.80. To avoid any taxes under the like-kind provision, the net proceeds were transferred at the closing to LandAmerica 1031 Exchange Services Company. Four days later, they acquired commercial office rental property in South Windsor known as Hartfield Executive Park for 4.7 million dollars, half with funds released by LandAmerica and half with a mortgage of 2.465 million dollars. In November 2008, however, before they could acquire a second property with the remaining funds from the sale being held in escrow, LandAmerica declared bankruptcy, and the result of that unexpected event has been calamitous: potential loss of the remaining $2.4 million of the net proceeds from sale of the Leggett Street property, inability to acquire a second property, and the possible loss of the tax deferment on that sale.
"In order to qualify [for a like-kind exchange under § 1031], the seller must complete the exchange within 180 days of the original sale and must not take control of the proceeds in the interim, . . . Accordingly, property owners typically entrust their sales proceeds to a qualified intermediary until they purchase replacement property . . ." United States v. Carpenter, 494 F.3d 13, 15 (1st Cir. 2007).
Hartfield Executive Park has produced some rental income for the Giordano brothers, but the loss of expected rental income from a second property, the loss of Car-Mil's steady rental income, and the downturn in C M's fortunes have caused a serious loss of income to the defendant in the last year. Whereas in the first half of 2008 he regularly received $750 per week income from Car-Mil and $6,500 per month income from C M, and his businesses also paid for a car lease costing approximately $600 per month and for his car gas and repairs, by the time of the hearing before this court he was receiving $1,000 per week from C M as his only cash income and no longer had a car lease. He stopped making installment payments due quarterly on the property settlement in January 2009, and in February 2009 he reduced the weekly amount of his unallocated support check to $500.
II PLAINTIFF'S AMENDED MOTION FOR CONTEMPT #183
The first issue presented on the plaintiff's amended motion for contempt #183 is whether the defendant was required by the separation agreement to pay the full balance of the property settlement when the Leggett Street properties were transferred to third parties in a transaction structured as a like-kind exchange under § 1031 of the Internal Revenue Code. "Separation agreements incorporated by reference into dissolution judgments are to be interpreted consistently with accepted principles governing contracts." Kremenitzer v. Kremenitzer, 81 Conn.App. 135, 139, 838 A.2d 1026 (2004).
A contract must be construed to effectuate the intent of the parties, which is determined from the language used interpreted in the light of the situation of the parties and the circumstances connected with the transaction . . . [T]he intent of the parties is to be ascertained by a fair and reasonable construction of the written words and . . . the language used must be accorded its common, natural, and ordinary meaning and usage where it can be sensibly applied to the subject matter of the contract . . .
(Internal quotation marks omitted.) Tallmadge Bros., Inc. v. Iroquois Gas Transmission System, L.P., 252 Conn. 479, 498, 746 A.2d 1277 (2000).
The defendant's brief weaves three arguments as to why the transaction in this case did not trigger his obligation to pay the property settlement in full: he was merely "trad[ing] the Business Entities' real property for similar real property of absolutely equal value and of similar purpose;" "[h]ad there been a sale, transfer, or other type of anticipated divestment there would have been net funds available to the plaintiff" with which he could meet the obligation to pay her the balance of the property settlement; and "the use of the escrow agent and the strict procedural terms and the absolute requirement of the § 1031 escrow agent was specifically fashioned so that the funds are never available to the defendant." Hence, his brief argues, the "Business Entities have not been divested of real property." See def.'s trial brief, at 7.
The essence of this argument is that, despite language in the separation agreement that the full balance would become due upon transfer of specifically-identified properties on Leggett Street in East Hartford, the parties' actual intent — which is what contract law seeks to effectuate — was something different, apparently that so long as the defendant's businesses owned any real property, wherever located, he could continue paying the property settlement by installment. A logical corollary is that the type of transfer of the properties that would activate the defendant's obligation to pay the entire sum immediately would be one that provided him with funds with which to do so, and that because the funds in this transaction were transferred by the buyer to the qualified intermediary, and the defendant thus did not have liquid funds in his possession with which to pay the property settlement in full, he was not obligated to do so.
This argument might have been persuasive had not the separation agreement specifically identified the properties whose transfer or divestiture would require the defendant to pay the full balance of the property settlement immediately. But this separation agreement did identify, by address, specific properties, and the harm that has occurred here, however unanticipated, is the very sort against which such language was intended to protect the plaintiff. She forbore any claims against the defendant's businesses in the dissolution proceeding in return for his promise to pay her $425,000, and she accepted his promise to pay that amount in installments in exchange for his promise to pay her the full amount if ownership of specific real property owned by those businesses and intended to secure those promises was transferred to another. The businesses owned by defendant did transfer those properties, at least half of the net proceeds from the sale may well have been lost, and close to 550,000 in federal and state taxation on the transaction, probably no longer deferred, may further eat into the net proceeds. Under the worst possible scenario, the defendant will not recover any of the $2.4 million in bankruptcy, will be fully taxed on his half share of the $4.1 million in net proceeds, will have to force sale of the newly-acquired Hatfield Executive Park office building to obtain funds to pay the plaintiff and those taxes, and will have less than $550,000 net after taxes to pay the balance owed to plaintiff, along with statutory interest thereon pursuant to General Statutes § 37-3a and legal fees owing to her, all of which now total more than $440,000.
According to plaintiff's exhibit 12, the defendant would incur federal taxes of approximately $426,906 and state taxes of approximately $107,282 if taxes on the sale are not deferred under § 1031.
There is nothing ambiguous about the language of the separation agreement, and the defendant has not advanced a claim of an incomplete agreement, mutual mistake, or fraud. This agreement must be construed as it was written, not as it might have been or as defendant would now prefer. Under the clear and unambiguous language of this separation agreement, the transfer of the defendant's interest in the properties at 81 and 95 Leggett Street required that he "immediately pay the wife any funds due her at that time so that she is paid in full." His failure to do so violated the judgment. Despite the defendant's belief that such a transaction was not a sale or transfer triggering his obligation under the judgment to pay the remaining balance of the property settlement, the "like-kind exchange" merely deferred his tax liability, but did not change the fundamental nature of the transaction — that the businesses owned or controlled by the Giordano brothers transferred their interest in the Leggett Street properties, via a qualified intermediary, to a third-party purchaser. Upon that transfer, under the terms of the separation agreement incorporated into the judgment, the balance of the property settlement became due to the plaintiff. When the defendant failed to pay the full balance to the plaintiff, he violated his obligations under the decree.
Although the property was actually owned by the two businesses, Car-Mil Realty, LLC and CM Warehouse, Inc., the defendant was the half owner of or co-President of those businesses, and neither party here claimed that the sale of the property by the businesses should not be attributed to the defendant for the purposes of determining whether he violated article VI of the separation agreement.
Noncompliance with that court order, however, does not mandate a finding of contempt. Marcil v. Marcil, 4 Conn.App. 403, 405, 494 A.2d 620 (1985). In determining whether a violation of a court order constitutes civil contempt, the court must determine "whether the violation was wilful or excused by a good faith dispute or misunderstanding." In Re Leah, 284 Conn. 685, 694, 935 A.2d 1021 (2007). "This does not mean, however, that such a dispute or misunderstanding will preclude a finding of wilfulness as a predicate to a judgment of contempt. Whether it will preclude such a finding is ultimately within the trial court's discretion." Eldridge v. Eldridge, 244 Conn. 523, 529, 710 A.2d 757 (1998). "The fact that the order had not been complied with fully, however, does not dictate that a finding of contempt must enter. It is within the sound discretion of the court to deny a claim for contempt when there is an adequate factual basis to explain the failure to honor the court's order." Marcil v. Marcil, supra, at 405.
The defendant argues here that his "actions and business decisions cannot be interpreted as wilful violations;" def's trial brief, at 8; because they resulted from a misunderstanding on his part of the effect of a "like-kind exchange" on his obligations under the decree. He offered credible testimony that he consulted with the attorney and accountant for his businesses regarding the effect of the judgment on a like-kind exchange and was "legally advised that a 1031 like-kind exchange did not constitute a sale and would not violate his obligations under the agreement." "[C]onsultation with counsel may be a factor to consider if the advice consists, for example, of how to comply with the order;" Rocque v. Light Sources, Inc., Superior Court, judicial district of Hartford, docket no. CV980581655S (December 13, 2004) (Beach, J.) (2004 WL 3106034, 5-6) [38 Conn. L. Rptr. 424]; but such advice is not an absolute defense to a claim of wilful misconduct, merely one of the factors to be considered.
Appellate cases reviewing findings of wilfulness in contempt proceedings have upheld such findings when parties engaged in self-help rather than seeking clarification of a vague order. See, e.g., Sablosky v. Sablosky, supra, 258 Conn, 713 (upholding a finding of contempt against a father who unilaterally reduced payments for post-secondary educational support based on a misunderstanding of the court's order) and Eldridge v. Eldridge, supra, 244 Conn. 523 (upholding finding of contempt against a husband who unilaterally suspended alimony payments based on his belief that he was entitled to certain credits after his ex-wife's income had exceeded an amount that the separation agreement had provided would trigger a reduction in alimony, where a previous appellate decision in the case had stated that any such change of alimony would come by way of a motion for modification). In In Re Leah, supra, 284 Conn. 685, on the other hand, the court disapproved a finding of contempt against the department of children and families for not having placed a troubled child in residential psychiatric care where the original orders had directed the department to refer the child to appropriate services and the only orders regarding mental health care had been to facilitate counseling between the child and her twin sister to resolve sibling difficulties and to cooperate with children's therapy. The Supreme Court explained the difference between its finding there and in Eldridge and Sablosky thusly:
Those cases involved, however, situations in which previously compliant parties stopped complying with court orders after changes in circumstances rendered the orders unclear without first seeking judicial clarification or modification. In contrast, the appeal before us is distinguishable from Sablosky and Eldridge because the specific steps were ambiguous at the outset, and therefore conferred broad discretion on the department to determine which services to provide to Leah. The department, far from employing self-help tactics and stopping services altogether, instead employed the broad discretion conferred upon it by the court in continuing to provide services to Leah.
Id., 700.
There are similarities between this case and Eldridge and Sablosky, for here too was "a previously clear and unambiguous court order that subsequently became, or was believed to be, ambiguous due to a change in circumstances, and a previously compliant party stopped obeying the order without first seeking judicial clarification or modification." Id., 718-23. Although the defendant received legal advice, there is no evidence that he sought counsel from his own attorney or an attorney familiar with the details of his obligations. From hearing the adamant testimony of the accountant and attorney, it is obvious that they believed that a like-kind exchange would not violate the court order, but, in view of the unambiguous terms of the decree, they probably never saw its express terms. The order that the defendant not transfer the Leggett Street properties without paying the plaintiff the full amount of the property settlement was obviously intended to protect the plaintiff against harms of the very sort that occurred. The parties were before the court in December 2007, several months after the initial offer to purchase the Leggett Street properties, and, when the judgment was then modified to include an alimony provision because of the defendant's representation that he could not give the plaintiff a mortgage note and deed for those properties, the defendant could have sought the court's advice on whether a like-kind transfer would invoke his obligations under the decree. The court thus finds that the defendant's violation of the terms of the judgment is wilful and grants the motion for contempt.
Having violated the court order and been found in contempt, the defendant will therefore be required, under General Statutes 46b-87 and Article XIII of the separation agreement, to pay the "reasonable counsel fees and costs incurred to enforced compliance with the Court orders" on the plaintiff's part. The court has reviewed the invoices from plaintiff's counsel submitted as plaintiff's exhibits 14 and 15 and finds that the hourly rate charged by plaintiff's counsel is a reasonable one for matrimonial lawyers practicing in the judicial district of Hartford. The court finds that the amount of time claimed by her attorney for services rendered and the specific activities conducted by counsel are reasonable. Although time expended by the plaintiff's counsel on this motion overlapped with that spent on other matters currently pending before this court, the issues were inextricably linked, much of the evidence relevant to those other matters was also necessary on this motion for contempt, and the vast majority of the time in hearing was spent on the like-kind exchange and its ramifications. Some time was spent on evidence related primarily to the defendant's motion for modification #180 and the plaintiff's motion for contempt #182, and the court has reduced the number of hours claimed by plaintiff by three hours to represent that time. The court finds that the plaintiff has incurred reasonable legal fees in the amount of $17,085 as legitimately and reasonably expended to date to enforce the property settlement in these proceedings. This amount is due and payable thirty days from the date of this decision, and simple interest shall thereafter accrue at the rate of eight percent per year.
General Statutes Section 46b-87 provides in relevant part as follows: "When any person is found in contempt of an order of the Superior Court entered under section 46b-60 to 46b-62, inclusive, 46b-81 to 46b-83, inclusive, or 46b-86, the court may award to the petitioner a reasonable attorneys fee and the fees of the officer serving the contempt citation, such sums to be paid by the person found in contempt, provided if any such person is found not to be in contempt of such order, the court may award a reasonable attorneys fee to such person."
As more fully discussed in the text below, Article XIII of the Separation Agreement provides: "If it is found by a Court that a party has failed to comply, the offending party shall be held responsible to pay the non-offending party reasonable counsel fees and costs incurred to enforced compliance with the Court orders."
The defendant claims that the plaintiff's only remedy is an order of additional alimony because of the written "Agreement re: Security, Post Judgment" signed by the parties and approved and ordered by the court, Simon, J., on December 10, 2007, the text of which is set forth in full below:
The Def represents that because of restrictions placed upon him by the commercial lending institution his business is working with, he is currently unable to execute a Mortgage Deed and Note, secured by 95 Leggett Street and 81 Leggett Street in East Hartford as contemplated in the Judgment of Dissolution.
Therefore, in order to secure the funds Defendant owes the Plaintiff by way of a lump sum property settlement per Article VI of the Judgment of Dissolution, he shall pay the Plaintiff $1.00 per year as alimony. Said alimony is modifiable in amount only in the event that the Defendant fails to make lump sum property settlements payments to the Plaintiff as outlined in the Judgment and modifiable only to the extent necessary to ensure that the Plaintiff receives the net sums owed her per the Judgment. Said alimony orders survives remarriage and is not modifiable as to term. It shall forever terminate when the Plaintiff has been paid in full as outlined in the Judgment of Dissolution, Article VI.
All other terms of the Judgment remain in full force and effect.
The defendant argues that this stipulation prevents any award of interest and effectively converts the net amount owed to plaintiff to a specific alimony award. Yet, as the circumstances of this case show and as the defendant's own motion for modification seeks to prove, the defendant cannot even afford to pay the original support order, much less any additional alimony. By its own terms the December 2007 stipulation was intended to replace one security provision of the original judgment, the mortgage deed and note, with another, additional alimony, and left the other terms of the judgment "in full force and effect." The original judgment had provided a second method of securing the property settlement by a pledge of the defendant's corporate stock. The December 2007 stipulation, by its own terms, left that provision in place. Moreover, nothing in the original judgment or the December 2007 stipulation purported to limit the court's inherent ability to enforce compliance with its own judgments. Provisions providing security for property orders in a judgment of dissolution are meant to protect the party who is the beneficiary of that order, and not to restrict that party's ability to use other means than the security provided in the judgment to enforce the judgment, particularly if, as here, that security itself becomes worthless. Even before the statute authorizing deficiency judgments in foreclosure actions, for example, the ancient rule that foreclosure of a mortgage satisfies the underlying debt did not prevent a mortgagor from instead bringing an action on the debt. See M'Ewen v. Welles, 1 Root 202 (1790).
As our Supreme Court has noted, "Connecticut courts traditionally examine the factors enumerated in rule 1.5(a) of the Rules of Professional Conduct in calculating a reasonable attorneys fee award." Simms v. Chaisson, 277 Conn. 319, 332 (2006). Rule 1.5(a) provides as follows: "A lawyer's fee shall be reasonable. The factors to be considered in determining the reasonableness of a fee include the following: (1) The time and labor required, the novelty and difficulty of the questions involved, and the skill requisite to perform the legal service properly, (2) The likelihood, if made known to the client, that the acceptance of the particular employment will preclude other employment by the lawyer; (3) The fee customarily charged in the locality for similar legal services; (4) The amount involved and the results obtained; (5) The time limitations imposed by the client or by the circumstances; (6) The nature and length of the professional relationship with the client; (7) The experience, reputation, and ability of the lawyer or lawyers performing the services; and (8) Whether the fee is fixed or contingent."
In addition, an order of statutory interest under General Statutes § 37-3a is also appropriate here. Section 37-3a(a) provides, in pertinent part, as follows: "[I]nterest at the rate of ten percent a year, and no more, may be recovered and allowed in civil actions . . . as damages for the detention of money after it becomes payable." An allowance of interest is at the discretion of the trial court, as is the rate of interest allowed. Mihalyak v. Mihalyak, 30 Conn.App. 516, 620 A.2d 1327 (1993). As the court noted in Maloney v. PCRE, LLC, 68 Conn.App. 727, 755, 793 A.2d 1118 (2002), "[a] trial court must make two determinations when awarding compensatory interest under § 37-3a: (1) whether the party against whom interest is sought has wrongfully detained money due the other party; and (2) the date upon which the wrongful detention began in order to determine the time from which interest should be calculated." (Internal quotation marks omitted.) The defendant should have paid the full balance of the property settlement on June 26, 2008, the date on which title of the properties on Leggett Street was transferred to the third parties purchasers. By not doing so, the defendant acted wrongfully. Accordingly, the court exercises its discretion to order statutory simple interest at the rate of eight percent per year on the balance of the property settlement, effective June 26, 2008, until the amount has been repaid or the court orders otherwise. As of the date of this order, interest in the amount of $42,075.16 is due, as shown in the footnote below.
Amount due on 6/26/08 $386,000.00
Daily interest at 8% $84.60
Number of days until next payment 5
Interest due for those days $423.00
Amt due after $2,000 paid 7/1/08 $384,000.00
Daily interest at 8% $84.16
Number of days until next payment 92
Interest due for those days $7,743.12
Amt due after $2,000 paid 10/1/08 $382,000.00
Daily interest at 8% $83.73
Number of days since then 405
Interest due for those days $33,909.04
Total interest due to date $42,075.16
The defendant's financial affidavit and the testimony at trial make it plain that the defendant does not have liquid funds to satisfy these orders, but his most recent financial affidavit valued his interest in his businesses as worth 1.275 million dollars. He is a half owner of Car-Mil Realty and C M, which purchased the Hatfield Executive Park commercial office space in South Windsor in 2008 for $4.65 million with a $2.4 million mortgage, and his ownership interest in that property alone is worth one million dollars. He thus owns sufficient assets to satisfy his obligation to pay the full property settlement, interest, and counsel fees.
The plaintiff has asked for an order that the defendant's stock certificates in his businesses be transferred to her so that she may pursue a partition action to force the sale of Hatfield Executive Park and/or dissolve the entities as she may deem appropriate. Section VI of the Judgment had required the defendant to "pledge his existing corporate stock and produce his stock certificates to be held in escrow until the wife is paid in full" in order to secure the property order, but the evidence at the hearing before this court established that the defendant has not yet pledged those stock certificates.
However, the court finds that, before ordering transfer of the defendant's stock certificates to the plaintiff, the defendant should be given an opportunity to present the court with a plan for paying the funds due to the plaintiff. The court will also consider any plan submitted by the defendant by which, instead, he could catch up on the quarterly installments, pay counsel fees and interest, and provide an adequate replacement security for the remainder of the period that the quarterly installments are paid on the property settlement, thereby restoring the plaintiff to virtually the same position that she would have been in but for LandAmerica's bankruptcy. Giving the plaintiff control of the defendant's interest in his businesses, partitioning the South Windsor property, or dissolving the businesses could have a catastrophic effect on the defendant's future ability to support his ex-wife and children or himself. Although it is true that the transfer of the Leggett Street properties violated the judgment, if LandAmerica had not gone bankrupt and the Giordano brothers had been able to purchase replacement commercial properties, the plaintiff's expectation of receiving the quarterly property settlement payments, secured by real property with sufficient value, would not have been disturbed. The defendant was replacing real property on Leggett Street with other real property; and he reasonably believed that a shift in the corporate model, toward more relying on managing commercial real estate, would benefit himself, his children, and potentially even his ex-wife. In devising a remedy for the defendant's violation of the court order and the plaintiff's loss of quarterly installment payments on the property settlement, the court will thus take into consideration the facts that the defendant did not proceed in bad faith toward his ex-wife and that his actions, though wilful and violating the judgment, would not, but for the unexpected bankruptcy of LandAmerica, have harmed the plaintiff's interests in (i) receiving the property settlement in quarterly payments that she accepted in the original judgment and (ii) having real property securing those payments.
Admittedly, this remedy will not give her the balance of the property settlement immediately, as the judgment anticipated upon transfer of the Leggett Street properties, nor put her immediately in control of the means by which to obtain those funds. This court believes, however, that the proper and equitable remedy here is not to take such immediately harsh action as sought by the plaintiff, but to give the defendant an opportunity to correct the wrong and make the plaintiff financially whole. The court will therefore order a compliance hearing to be held before this judge to address how to implement this decision. The defendant is cautioned, however, that any plan submitted must consist of more than a few pieces of paper, and he will be expected to provide credible evidence that the plan he offers, if contested by the plaintiff, is feasible, practicable, and will make plaintiff whole in a reasonable time period.
In the interim, the defendant is ordered to make weekly payments of $100 toward the property settlement, pending further court order, and to transfer his stock certificates to plaintiff's counsel, to be held in escrow, should he default on the court's orders here, and he shall also assign to her counsel any interest he has, either directly or through businesses that he controls or owns, in funds that may be received from the LandAmerica bankruptcy, any such funds also to be held in escrow pending further orders of this court.
The nominal amount of this order is not intended as a guide or suggestion as to the plan defendant is ordered to submit. Any such plan submitted by defendant must be likely to meet defendant's obligations to plaintiff in a reasonable period of time.
III DEFENDANT'S MOTION #179
The defendant's motion to "Re-Open and Hold Payments on Property Settlements in Abeyance" must be denied for two reasons. First, such an order would be an impermissible post-judgment modification of a property order. Judgments in civil matters are final and may not be modified except under limited circumstances not applicable here: if a motion to open or modify is filed within four months, pursuant to General Statutes § 52-212a and Practice Boo § 17-4; if the court has continuing jurisdiction, such as under General Statutes § 46-86 for post-judgment modification of alimony and support orders; if the judgment was procured by fraud, accident, mistake, or duress; or if "otherwise provided by law . . ." Kim v. Magnotta, 249 Conn. 94, 733 A.2d 809 (1999). The law authorizing post-judgment modification of support orders, General Statutes § 46b-86, expressly provides that it does not apply to property orders. Second, since, under the terms of the judgment, the transfer of the business properties triggered the defendant's duty to pay the entire balance of the property settlement, he no longer has any obligation to make installment payments.IV PLAINTIFF'S SECOND MOTION FOR CONTEMPT #182 AND DEFENDANT'S MOTION FOR MODIFICATION #180
The remaining two motions deal with the defendant's failure to continue paying the full amount of the court-ordered payments of unallocated support in the amount of $975 per week. Since February of this year, he has been paying only $500 per week. The defendant's motion seeks modification of the support payments because of "the decrease in the defendant's income as the result of the failure of the Business Entities in the declining world economy." Instead of an earning capacity of $115,000, which the parties had stipulated in their separation agreement was the basis for the support order, he now claims that he has gross income of only $1,000 per week.
The defendant's motion to modify the support order is governed by General Statutes § 46-86(a), which provides that "[a] final order for [alimony or] child support may be modified by the trial court upon a showing of a substantial change in the circumstances of either party." Under our law, "[t]he party seeking modification bears the burden of showing the existence of a substantial change in the circumstances." (Citation omitted; internal quotation marks omitted.) Fish v. Igoe, 83 Conn.App. 398, 406, 849 A.2d 910, cert. denied, 271 Conn. 921, 859 A.2d 577 (2004). "Following such a finding [for alimony orders], the court then answers the question of modification, taking into account the general alimony factors found in C.G.S. § 46b-82" Gervais v. Gervais, 91 Conn.App. 840, 844, 882 A.2d 731, cert. denied, 276 Conn. 919, 888 A.2d 88 (2005).
General Statutes § 46b-86, captioned "MODIFICATION OF ALIMONY OR SUPPORT ORDERS AND JUDGMENTS," provides, in relevant part, as follows: "(a) Unless and to the extent that the decree precludes modification, . . . any final order for the periodic payment of permanent alimony or support . . . may at any time thereafter be continued, set aside, altered or modified by said court upon a showing of a substantial change in the circumstances of either party . . ."
General Statutes § 46b-82, captioned "ALIMONY," provides, in pertinent part, as follows: "(a) In determining whether alimony shall be awarded, and the duration and amount of the award, the court . . . shall consider the length of the marriage, the causes for the annulment, dissolution of the marriage or legal separation, the age, health, station, occupation, amount and sources of income, vocational skills, employability, estate and needs of each of the parties and the award, if any, which the court may make pursuant to section 46b-81, and, in the case of a parent to whom the custody of minor children has been awarded, the desirability of such parent's securing employment."
In general the same sorts of [criteria] are relevant in deciding whether the decree may be modified as are relevant in making the initial award of alimony. They have chiefly to do with the needs and financial resources of the parties . . . More specifically, these criteria, outlined in General Statutes 46b-82, require the court to consider the needs and financial resources of each of the parties and their children, as well as such factors as the causes for the dissolution of the marriage and the age, health, station, occupation, employability and amount and sources of income of the parties.
(Citations omitted; quotations omitted.) Borkowski v. Borkowski, 228 Conn. 729, 738, 638 A.2d 1060 (1994). Moreover, the court cannot ignore the fact that minor children are the beneficiaries of this order; and, even if unallocated, any final order must at least equal the presumptive amount under the child support guidelines in the absence of a finding that failure to deviate would be inequitable or inappropriate. See, e.g., Wallbeoff v. Wallbeoff, 113 Conn.App. 107, 965 A.2d 571 (2009) (ordering a new trial on financial issues because trial court entering child support order deviating from the guidelines did not make a specific finding that adopting the presumptive support amount would be inequitable or inappropriate).
The financial affidavit that the defendant filed at the time of the judgment listed weekly income of $2,019 gross and $1,554 net. The gross income figure annualizes to just under $105,000, and the evidence supports the defendant's testimony that the stipulated earning capacity of $115,000 was based both on his regular draws from the businesses and personal expenses paid by the businesses. In 2007 the plaintiff filed a motion for modification seeking an increase in support, and the court denying that motion found that her claim of a sixty percent increase in defendant's income since the judgment was unsubstantiated by the facts and that "the payments of certain expenses . . . have not changed significantly since the dissolution." Memorandum of Decision, at 4 (December 18, 2007, Simon, J.) The defendant credibly testified at the hearing before this court that historically he received a weekly draw of $750 from C M and a monthly draw from Car-Mil Realty of $6,500, and that the businesses would also pay for a car lease, his car gas and repairs, and a computer line at his home so that he could work there. The evidence also shows that the businesses often also paid for his rent and utilities, but confirms his testimony that he would reimburse the businesses for these payments. In 2008 the businesses also paid his income taxes.
Since mid-2008, however, the defendant's draws from the businesses have decreased significantly. He now receives only $1,000 per week gross from C M, plus payment for his gas, car repairs, and internet service at his home. The only credible evidence as to the value of these latter payments by the business is his financial affidavit, which lists them as worth $27 per week gross. Thus, his current income is $1,027 per week gross and $764 per week. Because he is half owner of these businesses and has considerable influence over how much he is paid, the court examined the records submitted into evidence from C M through November 2008, which show substantially reduced year-to-date revenues (down by $124,000) and gross profit (down by $177,000), somewhat greater expenses (up by $43,000), and $220,000 less net income compared to the same time period in 2007. It appears that some, but not all of this change is due to the loss of rental income from the sale of the Leggett Street warehouse property and now having to rent warehouse space, but a substantial part is also due to decreased other revenues. There was no documentary or other evidence regarding Leggett Logistics, Inc., or Car-Mil that refutes the defendant's claims as to their modest 2008 earnings or his personal income from Car-Mil since mid-2008. Although the defendant listed his annual income as "$100,000 ±" on a bank small business loan application on October 31, 2008, that date was before the LandAmerica bankruptcy and while the brothers were close to purchasing the second like-kind exchange property. The court finds credible the defendant's explanation that he then believed the drop in income was only temporary and would be soon staunched because the purchase of new commercial properties was a step toward restoring their business fortunes.
Ordinarily such a reduction in income would establish a change of circumstances for purposes of modifying support, but the plaintiff claims that modification should be denied here because the "decrease in the Defendant's income . . . was self-created by his own decision to sell the Leggett Street properties. `The fact that he himself brought on the situation forecloses him from legitimately escaping his obligation.' Sanchione v. Sanchione, 173 Conn. 397." Pl.'s trial brief, at 9. (Although no such quotation is found in Sanchione v. Sanchione, 173, Conn. 397, 378 A.2d 522 (1977), the trial court in Schade v. Schade, 110 Conn.App. 57, 66, 954 A.2d 846, cert. denied, 289 Conn. 945, 959 A.2d 1009 (2008), cited Sanchione for that proposition. See id., at 64, fn.6.) In Sanchione, the trial court had granted a motion for modification because of "a change of circumstances re the defendant's ability to pay . . ." (Citations omitted.) The Supreme Court noted that
"Inability to pay" does not automatically entitle a party to a decrease of an alimony order. It must be excusable and not brought about by the defendant's own fault. There is no way to determine simply from the affidavits and finding what factors the court considered, whether the husband's expenses were greater than necessary, whether his inability to pay was a result of his own extravagance, neglect, misconduct or other unacceptable reason . . .
173 Conn. 407. In Schade, the court upheld a trial court decision granting a temporary modification of alimony under which unpaid portions of the prior order would continue to accrue, despite a substantial change of circumstances, because
the defendant's earning capacity was far in excess of his present earnings and . . . he did not pursue any of the considerable potential avenues to remedy his financial situation. [The trial court] observed that the defendant intentionally was causing a financially stressful situation for the plaintiff and was avoiding his present familial financial obligations of unallocated support and alimony.
Schade v. Schade, 110 Conn.App. 61.
In the present case, on the other hand, there is no credible evidence here that the defendant "wilfully depleted his or her earnings with a view toward denying or limiting the amount of alimony to be paid;" Schmidt v. Schmidt, 180 Conn. 184, 190, 429 A.2d 470 (1980); "wilfully restricted his earning capacity to avoid support obligations;" Bleuer v. Bleuer, 59 Conn.App. 167, 170, 755 A.2d 946 (2000); "intentionally caus[ed] a financially stressful situation for the plaintiff," Schade v. Schade, supra, 101 Conn.App. 61, or was "by education and experience, capable of realizing substantially greater earnings simply by applying himself or herself." Weinstein v. Weinstein, 87 Conn.App. 699, 706, 867 A.2d 111 (2005), rev'd on other grounds, 280 Conn. 764, 911 A.2d 1077, after remand, 104 Conn.App. 482, 934 A.2d 306 (2007), cert. denied, 285 Conn. 911, 943 A.2d 472 (2008). There is no basis for finding that "his inability to pay was a result of his own extravagance, misconduct [or] neglect." Sanchione v. Sanchione, supra, 173 Conn. 407. The reduction in his earnings is a consequence of reduced business success and the unpredictable and unanticipated bankruptcy of LandAmerica, over which the defendant had no influence or control. Despite plaintiff's claims to the contrary, there is no evidence here suggesting that the defendant has a greater earning capacity at the present time than his current income. The defendant was held in contempt on motion #183 not because of the like-kind transfer of the Leggett Street properties, which on its own violated no provision of the judgment, but for not thereafter paying the plaintiff the full amount due to her under the property settlement.
The court therefore finds that the defendant has sustained his burden of showing a substantial change of circumstances since the last support order. At the present time, he has gross weekly income of the $1,000 draw and an additional $27 per week for the gas and car insurance paid for by his business, for net weekly income of $764. The plaintiff earns $366 per week gross as a paraprofessional in the South Windsor school system and a part-time job teaching yoga, with net weekly income of $335. The presumptive support amount under the child support guidelines would be for the defendant to pay the plaintiff child support of $228 per week plus 49% of unreimbursed medical and qualifying child care expenses.
The evidence makes clear that neither party has enough income to pay their current expenses, although the deficits between net income and expenses are quite different. Mr. Giordano's income is $78 less than his weekly expenses, while Ms. Ulbinsky's net income is more than $1,000 less than hers. The decrease in support payments since February and the loss of the quarterly installment payments of $5,000 that she had expected this year toward the property settlement have wreaked significant financial harm to Ms. Ulbinsky and the parties' children. She has been unable to afford continued gymnastics, acting and singing classes for Elena, to send Elena on a school trip to Washington, D.C., to give allowances to the children, or let them buy yearbooks at school. She has borrowed money from her mother and eaten into her savings. But Mr. Giordano has faced difficult financial circumstances as well. He turned in a car lease on an Acura his business had been paying for, has reduced his living expenses substantially, used most of his personal bank accounts, and also borrowed personal loans. It would take all of his net income to meet all of her expenses. Under the present circumstances, after considering the parties' net incomes, needs, and expenses, as well as the statutory factors for provisions of alimony, the court grants the motion for modification and reduces the order of unallocated support from $500 per week to $228 per week in child support, in accordance with the child support guidelines, and $272 in alimony. The child support guidelines require that a child support order shall provide not only for current support but also allocation of unreimbursed medical expenses and qualifying child care expenses; Regulations, Connecticut State Agencies, § 46b-215a-2b(g) and (h); based on their respective shares of "combined net disposable income," a term not expressly defined by the child support guidelines but which the guidelines use to refer to each party's income after payment of alimony and child support; and the plaintiff shall be responsible for 71% and the defendant for 29% of qualifying child care expenses and unreimbursed medical expenses. Under General Statutes § 46b-86(a), a final order for support may be modified retroactively if a marshal served the motion seeking modification. A marshal's return appended to the original motion in the court file shows that the plaintiff was served by marshal with this motion on December 30, 2008, and this order is retroactive to that date.
Although the original order was for unallocated alimony, the court has determined that, in view of the substantial reduction in support and the loss of the plaintiff's expected quarterly payments on the property order, it is no longer fair or equitable for the support order to be unallocated, which has the consequence of all payments to the plaintiff probably being taxable to her and deductible to the defendant, thereby leaving plaintiff with less net disposable income to meet her needs and those of the minor children. Instead, the court will order the presumptive support amount for child support, and the balance of the court's support order to be alimony, until such time as the order is restored to the prior level or a court orders otherwise.
Section 46b-215a-2b, Regulations, Connecticut State Agencies, provides, in relevant part, as follows:
(g) Determining the health care coverage contribution
Subject to section 46b-215a-3 of the Regulations of Connecticut State Agencies, each child support award entered under this section shall include a provision for either parent to contribute to the health care coverage of the child in accordance with this subsection
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(h) Determining the child care contribution
(1) General rule
Subject to section 46b-215a-3 of the Regulations of Connecticut State Agencies, the noncustodial parent shall be ordered to pay the custodial parent a child care contribution as part of each child support award entered under this section. Such contribution shall be for the purpose of reimbursing the custodial parent for a portion of the child care costs incurred on behalf of the subject child.
General Statutes § 46b-86, captioned "MODIFICATION OF ALIMONY OR SUPPORT ORDERS AND JUDGMENTS," provides, in relevant part, that "(a) No order for periodic payment of permanent alimony or support may be subject to retroactive modification, except that the court may order modification with respect to any period during which there is a pending motion for modification of any alimony or support order from the date of service of notice of such pending motion upon the opposing party pursuant to section 52-50."
Moreover, the plaintiff's second motion for contempt #182, which sought a finding of contempt against the defendant for unilaterally reducing his support payments to $500 per week beginning February 2008, is also denied. There is no doubt that in doing so he violated the court order, but inability to comply with an order is always a defense to contempt, and the defendant has shown so here.
In view of the defendant's influence over the amount he is paid by his businesses, the court orders that, until such time as unallocated alimony has been reinstated by court order to the amount ordered in the judgment or a court later orders otherwise, he shall provide the plaintiff quarterly with copies of the cash disbursement journals and general ledgers of the three businesses and any new ones in which he may have an interest, all filings submitted on behalf of those businesses to the internal revenue service or state department of revenue services, all income and expense statements prepared by the businesses' bookkeeper or accountant, and other documentation that plaintiff may reasonably request to ascertain the level of profitability of the businesses and the income being paid to or on behalf of the defendant.
V ORDERS A. Plaintiff's Amended Motion for Contempt #183:
1. The defendant shall pay the plaintiff's counsel fees in the amount of $17,085, which is due and payable within thirty days of the date of judgment, and simple interest shall accrue at the rate of eight per cent per annum on any unpaid portion after that date.
2. The defendant shall pay simple interest at the annual rate of eight per cent on the unpaid portions of the property settlement balance until the balance has been paid or until further court order. As of this date, the sum of $42,075.16 is due and payable.
3. Pending the compliance hearing, the defendant shall pay plaintiff $100 per week toward sums owed on the property settlement.
4. The defendant is ordered to transfer his stock certificates to plaintiff's counsel, to be held in escrow, should he default on the court's orders here, and he shall assign her any interest he has, either directly or through businesses that he owns or in which he has an ownership interest, in funds that may be received from the LandAmerica bankruptcy, any such funds also to be held in escrow pending further orders of this court.
5. On or before 60 days from the date of this decision, the defendant shall file a plan for paying all funds due to the plaintiff or, in the alternative for (a) paying plaintiff's counsel fees, statutory interest awarded to her, and unpaid quarterly installments on the property settlement, (b) resuming quarterly payments on the property settlement in accordance with the judgment, and (c) restoring security comparable to that provided to the plaintiff by the judgment. The clerk shall schedule a compliance hearing thirty days thereafter, at which time, if plaintiff does not accept the defendant's plan, the court will hear any evidence the parties may wish to offer on compliance with the judgment and this court's decision herein. The court will thereafter enter orders further implementing this decision and the judgment and setting forth requirements for defendant's compliance.
6. Simultaneously with filing the plan, the defendant shall deliver to the plaintiff all documentation necessary to explain the plan and to show its feasibility. He shall file a notice to the court of compliance with this order.
B. Defendant's Motion for Modification #180
7. The defendant shall pay child support to plaintiff in the amount of $228 per week and alimony to her in the amount of $272 per week, effective January 1, 2009. Effective that same date, plaintiff will be responsible for 71% and defendant for 29% of qualifying child care expenses and unreimbursed medical expenses.
8. The overpayment of $475 resulting from defendant's payment of $975 unallocated support in January 2009 shall be credited to statutory interest owed to the plaintiff pursuant to the orders above.