Opinion
No. A05-2338.
Filed October 24, 2006.
Appeal from the District Court, Hennepin County, File No. Pa 40349.
Timothy D. Lees, Hennek Klaenhammer Lees, P.A., (for appellant)
R. Donald Hawkinson, (for respondent)
Considered and decided by Lansing, Presiding Judge; Klaphake, Judge; and Minge, Judge.
This opinion will be unpublished and may not be cited except as provided by Minn. Stat. § 480A.08, subd. 3 (2004).
UNPUBLISHED OPINION
Appellant Gregory Washington challenges the district court's decision (1) increasing his child support obligation; (2) addressing retroactive modification of support; (3) applying the increase retroactively; (4) simultaneously creating a child support arrearage and entering judgment for the arrearage; (5) awarding respondent attorney fees; and (6) imposing a lien on appellant's properties to secure future child support payments. We affirm in part, reverse in part, and remand.
FACTS
The parties are the parents of a minor child, M.G.W., born November 27, 1997. Although the parties were never married to each other, appellant's paternity was established by court order and the parties shared custody.
Child support has been the subject of multiple proceedings. In August 2001, a child support magistrate (CSM) ordered appellant to pay temporary child support in the amount of $310.75 per month beginning July 1, 2001. In February 2002, a referee found that appellant earned a total net monthly income of $2,550 from employment with Northern Mortgage and Zion Baptist Church, found that appellant had two other children for whom he had child support obligations, and ordered that appellant pay child support for M.G.W. in the amount of $200 per month beginning February 1, 2002.
Litigation over child support continued. In October 2002, appellant submitted updated employment information to the court, which represented that he grossed $2,800 per month working as a liaison between stock brokers and as a church musician. In December 2002, the district court ordered that pending pretrial, all court orders, including child support remained in full force and effect; reserved respondent's motion for attorney fees and child support arrearages; and ordered both parties to exchange financial information prior to trial. The hearing on child support was delayed. In October 2003, the court ruled on certain custody issues and again ordered both parties to exchange financial information and submit written arguments to the court. It appears from the record that neither party supplied information in compliance with either the December 2002 or October 2003 orders.
In January 2004, appellant filed a motion to modify his child support obligations. Appellant claimed that his only employment was as a musician, earning $1,000 a month. In May 2004, the CSM denied appellant's motion to modify his child support obligations. The CSM found that appellant was voluntarily underemployed, had failed to disclose his sources of income, and had failed to make an effort to find employment. The CSM found that the appellant had earned more than $73,000 in 1999 and more than $54,000 in 2000. The CSM imputed income to appellant in the amount of $2,367 per month.
The legal proceedings related to child support continued. In June 2005, respondent's attorney deposed appellant. During this deposition, appellant refused to answer questions posed to him, including those related to his child support obligations, assets, and income, citing the Fifth Amendment. On June 30, 2005, respondent filed a motion seeking sole custody of the child and an increase of monthly child support to $1,250. Also, because of appellant's refusal to cooperate with the discovery proceedings, in early July respondent filed a motion requesting that as a sanction (under Minn. R. Civ. P. 37.02(b)(1) and (2)), the district court deny appellant the ability to provide evidence at the trial to support his January 2004 motion to reduce child support. Although appellant objected, the request was granted.
In July 2005, an evidentiary hearing was held. The district court enforced the sanction limiting appellant's introduction of evidence. There was no evidence of his then current income. However, evidence was introduced that in 2000 and prior years appellant had had an income in excess of $100,000 per year; that in 2000 he had had liquid assets of more than $500,000; that he drove an expensive, newer model vehicle; that he had purchased several parcels of real estate for more than $1,100,000; and that he had an ownership interest in two businesses.
In October 2005, the district court issued its findings of fact, conclusions of law, and order. The district court imputed a net monthly income of $6,975 to appellant and found that he had the earning capacity to pay $1,500 a month in child support. The district court then ordered that amount be paid retroactively to October 2003, found that appellant was in arrears in the amount of $28,007.59, and ordered entry of judgment for that amount. The district court further ordered that as security for the payment of child support, appellant grant respondent a lien on two Hennepin County properties alleged to be appellant's. Additionally, the district court ordered that appellant pay respondent's attorney fees of $25,797.55 for representation in earlier proceedings. Because respondent's attorney in the current proceeding was providing pro bono legal services, the district court ordered that appellant make a contribution, on behalf of himself and respondent's attorney, to Habitat for Humanity in the amount of $6,615 and to Joyce Food Shelf in the amount of $6,615. The real estate lien was expanded to secure the total award of attorney fees. This appeal followed.
DECISION I.
The first issue is whether the district court abused its discretion when it estimated appellant's net monthly income for child support purposes to be $6,975. A district court has broad discretion to set support and abuses its discretion when it sets support in a manner that is against logic and the factual record or misapplies the law. Putz v. Putz, 645 N.W.2d 343, 347 (Minn. 2002) (providing that a district court has broad discretion to set support); Rutten v. Rutten, 347 N.W.2d 47, 50 (Minn. 1984) (holding that an abuse of discretion occurs when the district court sets support in a manner "that is against logic and facts on record"); Ver Kuilen v. Ver Kuilen, 578 N.W.2d 790, 792 (Minn.App. 1998) (providing that improper application of the law amounts to an abuse of discretion). A determination of income for support purposes is a finding of fact and is not altered on appeal unless clearly erroneous. Ludwigson v. Ludwigson, 642 N.W.2d 441, 446 (Minn.App. 2002). To challenge successfully a finding of fact, "the party challenging the finding must show that despite viewing that evidence in the light most favorable to the trial court's findings . . . the record still requires the definite and firm conviction that a mistake was made." Vangness v. Vangness, 607 N.W.2d 468, 474 (Minn.App. 2000).
The district court may estimate a support obligor's income where the obligor is "voluntarily unemployed or underemployed" or where it is impracticable to determine the obligor's actual income. Minn. Stat. § 518.551, subd. 5b(d) (2004) (voluntarily unemployed or underemployed); Eisenschenk v. Eisenschenk, 668 N.W.2d 235, 240 (Minn.App. 2003) ("impracticable to determine . . . actual income"), review denied (Minn. Nov. 25, 2003). Appellant argues that the district court should not have estimated his income because it failed to find that he was voluntarily unemployed or underemployed, and failed to find that it was impracticable to determine his income. On this record, the district court's error in failing to make these findings is harmless, and, under Minn. R. Civ. P. 61, which requires harmless error to be ignored, we disregard that error.
The district court's order and its statements from the bench show that it was aware of appellant's failure to adequately respond to respondent's discovery requests. Awareness of this failure can be considered by the district court. See Federated Mut. Ins. Co. v. Litchfield Precision Components, Inc., 456 N.W.2d 434, 436 (Minn. 1990) (stating that unfavorable inferences may be drawn from a party's failure to produce evidence in its possession); see also Bollenbach v. Bollenbach, 285 Minn. 418, 428, 175 N.W.2d 148, 155 (1970) (stating that a party's failure to produce full account of debts and assets justifies adverse inferences); Eisenschenk, 668 N.W.2d at 243 (noting that a party may not complain about district court's failure to rule in her favor when "one . . . reason it did not do so is because that party failed to provide the district court with the evidence that would allow the district court to fully address the question."). Absent the relevant information, determining appellant's actual income is difficult. However, the record contains evidence that appellant had had substantial income, was involved with two Minnesota corporations, and had considerable real-estate interests. This information indicates that any failure of appellant to have comparable income and resources at present supports a determination that appellant is voluntarily unemployed or underemployed. Under these circumstances, we will not reverse the district court's decision to estimate appellant's income.
Appellant also argues that the $6,975 net monthly income attributed to him is excessive and not supported by the record. But when a district court estimates a support obligor's income, it may consider a broad range of information including the obligor's lifestyle and cash flow, and other concrete evidence of resources available to the obligor. See, e.g., Johnson v. Fritz, 406 N.W.2d 614, 616 (Minn.App. 1987) (stating that court can take "lifestyle of a sole business owner" into account if income figures offered fail to comport with that lifestyle); Schelmeske v. Veit, 390 N.W.2d 309, 311-12 (Minn.App. 1986) (stating that district court may consider cash flow when calculating self-employed obligor's income becomes "difficult task"); Ferguson v. Ferguson, 357 N.W.2d 104, 108 (Minn.App. 1984) (stating that district court has broad discretion to determine income of self-employed obligor because "the opportunity for a self-employed person to support himself yet report a negligible net income is too well known to require exposition"). Further, a support obligation need not be based solely on the obligor's income. See Minn. Stat. § 518.551, subd. 5(c)(1) (2004) (requiring district court, when setting support, to consider "all earnings, income, and resources of the parents, including real and personal property") (emphasis added); Darcy v. Darcy, 455 N.W.2d 518, 521 (Minn.App. 1990) (noting breadth of requirement that court consider earnings, income, and resources, and stating "[t]he exact parameters of what may or may not be used to satisfy or set a support obligation have not been fully determined").
Here, in addition to having interests in two corporations and various parcels of real estate, appellant had a brokerage account with a balance of about $300,000 in 2000 and drove a newer, expensive vehicle. Also, a "New Account Form" and an "Account Suitability Form" that he supplied to securities firms indicated that he had had annual earnings more than $100,000 in 2000, and liquid assets of $50,000 in 1999 and more than $500,000 in 2000. Further, evidence of recent property transactions indicates that appellant had a significant income stream, and respondent secured property-tax records from Hennepin County indicating that appellant purchased property in April 2000 for $249,900; in May 2000 for $80,000; in July 2004 for $408,500; and September 2004 for $369,900. On this record, and particularly given the combination of appellant's refusal to cooperate in discovery, his failure to provide financial information, and the inferences suggested by the financial information that is of record, appellant has not shown that the district court clearly erred in estimating his net monthly income for child support purposes to be $6,975. See Eisenschenk, 668 N.W.2d at 242-43 (affirming allegedly excessive income imputed to support obligor, based in part on obligor's failure to make credible financial disclosures).
II.
The second issue is whether prior statements by the district court precluded it from ordering retroactive child support. Appellant argues, correctly, that the written ruling retroactively increasing his support obligation is inconsistent with its statements from the bench that the retroactive modification of support would not be addressed in the current proceeding.
Appellant suggests that this change of position is a result of inadvertent and improper acceptance by the district court of a proposed order furnished by respondent. While the record before this court lacks a copy of a document claiming to be respondent's proposed findings of fact, conclusions of law, and order for judgment, the record does include a letter to the district court from appellant referring to and challenging respondent's proposed order. However, appellant's letter does not specifically identify any aspect of the proposed order that was allegedly inconsistent with what appellant understood the district court's ruling to be. We note that the order signed by the district court contains multiple handwritten alterations, each individually initialed by the district court. Thus, if the order signed by the district court was respondent's proposed order, the district court reviewed, and at numerous points altered, that order before signing it. Cf. Schallinger v. Schallinger, 699 N.W.2d 15, 23 (Minn.App. 2005) (discussing adoption of party's proposed order), review denied (Minn. Sept. 28, 2005).
In a letter to the district court, appellant raised as an issue for the district court's consideration the consistency of its written rulings and its prior oral statements. Our review of this inconsistency is difficult because the district court's written order failed to explain why it chose to address an issue that it previously said would not be addressed. However, the district court's prior statements were not a final disposition of the matter. Although the consistency of the district court's order and prior statements were at issue, we do not assume that a district court erred by unknowingly issuing an order inconsistent with its prior statements. Rather, we assume that the district court simply reevaluated the suitability of its prior statements that it would not address retroactive modification of support. Cf. Loth v. Loth, 227 Minn. 387, 392, 35 N.W.2d 542, 546 (1949) (stating that appellate courts cannot assume district court error); Luthen v. Luthen, 596 N.W.2d 278, 283 (Minn.App. 1999) (applying Loth). Further, we note that under Minn. R. Civ. P. 58.01 a tentative judgment is not effective, and hence may be altered, until it is entered.
We decline to give a district court's statements from the bench any greater preclusive effect than an unentered, tentative order for judgment. On this record, we decline to use the inconsistency between the district court's statements from the bench and its subsequent written ruling as a basis for reversing the retroactive modification of appellant's support obligation.
III.
The third issue is whether it was otherwise error to modify support retroactively. Generally, a support modification is retroactive to the date the moving party served the motion to modify, but a modification "may" be made retroactive to an earlier date if the district court makes "express findings" that "the party seeking modification was precluded from serving a motion by reason of . . . a material misrepresentation of another party . . . and that the party seeking modification, when no longer precluded, promptly served a motion[.]" Minn. Stat. § 518.64, subd. 2(d)(1); see Gully v. Gully, 599 N.W.2d 814, 821 (Minn. 1999) (addressing retroactive modification of support); Bormann v. Bormann, 644 N.W.2d 478, 482-83 (Minn.App. 2002) (same). Whether to modify support retroactively is discretionary with the district court. Guyer v. Guyer, 587 N.W.2d 856, 859 (Minn.App. 1999), review denied (Minn. Mar. 30, 1999); Finch v. Marusich, 457 N.W.2d 767, 770 (Minn.App. 1990).
Appellant argues that respondent did not move for retroactive modification of support and that the district court failed to make the "express findings" required by Minn. Stat. § 518.64, subd. 2(d)(1), to allow a retroactive modification. But respondent's affidavit requested that support be set retroactively to July 12, 2002. Respondent's attorney also noted that the motion was based on Rule 37.02 (b)(1) and (2) for appellant's failure to answer questions at the June 27, 2005 deposition.
Minnesota Rules of Civil Procedure rules 37.01 and 37.02 provide for a motion for sanctions and sanctions if a deponent fails to answer questions propounded at a deposition including an order that "the matters regarding which the order was made or any other designated facts shall be taken to be established for the purposes of the action. . . ." Minn. R. Civ. Pro. 37.01(b), 37.02(b)(1).
Regarding appellant's assertion that the district court failed to make the findings required to retroactively modify his support obligation, appellant is correct to the extent that he refers only to the district court's written findings. From the bench, however, the district court stated that "it appears quite clear that the [appellant] . . . answered no questions of substance" and that appellant's attempt to invoke the Fifth Amendment to avoid providing information was "abusive of the process." Statements from the bench can be treated as findings of fact. Minn. R. Civ. P. 52.01.
Despite the fact that the district court did not use the phrase "material misrepresentation," three reasons support a conclusion that the district court's statements from the bench establish findings on all elements of material misrepresentation. First, in family cases parties have an affirmative duty to disclose relevant information, and a failure to satisfy that duty can be a material misrepresentation if the result of the failure to disclose is an artificially low support obligation. Gully, 599 N.W.2d at 821-22; cf. Doering v. Doering, 629 N.W.2d 124, 131 (Minn.App. 2001) (discussing affirmative duty of parties to dissolution to disclose relevant information), review denied (Minn. Sept. 11, 2001) cited in Eisenschenk, 668 N.W.2d at 243. Here, appellant failed to provide relevant information, and it is undisputed that his prior support obligation was considerably less than that set by the district court in these proceedings.
Second, the statements from the bench are supported by the record. In October 2002, appellant submitted an affidavit and pay stubs to the district court in which he stated that he worked as a liaison between stock brokers and earned an approximate monthly gross income of $2,322, along with approximately $500 per month in supplemental income from his work as a church musician. After several pretrial dates, the district court ordered appellant to provide financial information to respondent in October 2003. In May 2004, the CSM denied appellant's motion to modify his child support obligations finding that appellant was voluntarily underemployed and/or had failed to disclose his sources of income, and had failed to seek employment. The CSM imputed income to appellant in the amount of $2,367 per month. But after appellant failed to comply with the district court's order to disclose and refused to answer questions at a June 2005 deposition, respondent submitted evidence that appellant owned several properties in Hennepin County, had purchased two of them in 2004, and had had income in excess of $100,000 per year and investment accounts with an aggregate balance of $500,000. Respondent obtained this information from third parties. Appellant disclosed none of this information to the court.
Third, a remand for the district court to use the phrase "material misrepresentation" would, in this case, elevate form over substance and fail to recognize certain case law. See Grein v. Grein, 364 N.W.2d 383, 387 (Minn. 1985) (declining to remand and affirming custody decision when "from reading the files, the record, and the court's findings, on remand the [district] court would undoubtedly make findings that comport with the statutory language" and reach the same result); Warwick v. Warwick, 438 N.W.2d 673, 678 (Minn.App. 1989) (ruling that, despite lack of an explicit finding of bad faith, district court "did not err in considering [maintenance obligor's] earning capacity rather than his actual income" when record required the inference that the district court believed the obligor unjustifiably reduced his income by acting in bad faith).
Based on this unique record, because the district court's statements from the bench are tantamount to a finding of a material misrepresentation, because we conclude the district court's failure to make a written finding of a material misrepresentation is a harmless error under Minn. R. Civ. P. 61, and because the seemingly perpetual child support litigation in this matter renders it self-evident that respondent's request for retroactive support was sufficiently prompt within the meaning of Minn. Stat. § 518.64, subd. 2(d)(1), we affirm the district court's retroactive increase in appellant's support obligation.
IV.
The fourth issue is whether it was error for the district court to retroactively increase appellant's support obligation and, simultaneously, deem the amount due for the period covered by the retroactive increase to be unpaid arrears and award respondent a judgment for those arrears. The district court ruled that "[c]hild support arrearages shall become a judgment in favor of [r]espondent against [appellant]." Arrears are defined as
amounts that accrue pursuant to an obligor's failure to comply with a support order. Past support and pregnancy and confinement expenses contained in a support order are arrears if the court order does not contain repayment terms. Arrears also arise by the obligor's failure to comply with the terms of a court order for repayment of past support or pregnancy and confinement expenses. An obligor's failure to comply with the terms for repayment of amounts owed for past support or pregnancy and confinement turns the entire amount owed into arrears.
Minn. Stat. § 518.54, subd. 13 (2004); see County of Nicollet v. Haakenson, 497 N.W.2d 611, 616 (Minn.App. 1993) (discussing arrears and entry of judgment thereon). Here, the ruling retroactively increasing appellant's support obligation designated the amount due for the retroactive increase as arrears without giving appellant an opportunity to pay that amount. Therefore, under the statute, the amount due for the retroactive increase could be arrears only if it is "past support . . . contained in [the] support order" and was set in an order that lacks repayment terms. "Past support" is not formally defined by the statute. But even if the amount due for the retroactive increase in appellant's support obligation is "past support," that amount cannot be arrears because no amount of "past support" was contained in the support order and because it is not clear whether the "support payments commencing August 1, 2005" that the district court required be paid through the support payment center were to include a payment for "arrears." If those payments were to include a payment for "arrears," the district court would have set payment terms for the past support. See Minn. Stat. § 518.6111, subd. 10(a) (2004) (allowing withholding of 20% of current obligation for payment towards arrears). Thus, because the district court awarded respondent a judgment for arrears and because, when the district court made its ruling, no definite amount of "past support" was included in the support order and it was unclear whether the district court set payment terms, no arrears existed. Therefore, we reverse the award to respondent of the judgment for "arrearages."
V.
The next issue is whether the district court abused its discretion in ordering appellant to pay attorney fees and in directing appellant to contribute additional funds to charities in lieu of paying fees for respondent's current volunteer attorney. The district court failed to identify the authority for its attorney fee award. For appeal purposes, however, we assume that the fee awards were made under Minn. Stat. § 518.14, subd. 1 (2004), the attorney-fee statute generally applicable in child support matters. Under that statute, the district court "shall" award need-based attorney fees under certain circumstances and "may" award conduct-based attorney fees under other circumstances. Id. While the district court made some of the findings necessary to support both types of awards, it did not make adequate findings to support either type of award. Therefore, we reverse the award of attorney fees and remand for the district court to identify the basis for the award and make the required findings. See Haefele v. Haefele, 621 N.W.2d 758, 767 (Minn.App. 2001) (remanding fee issue, stating lack of findings "preclude[d] effective review" of fee award when district court awarded need-based and conduct-based attorney fees under Minn. Stat. § 518.14, subd. 1, but did not indicate how much of the award was for either reason), review denied (Minn. Feb. 21, 2001); see also Geske v. Marcolina, 624 N.W.2d 813, 818-19 (Minn.App. 2001) (addressing awards of attorney fees).
Next we consider payment in lieu of attorney fees. "Attorney fees" is not defined in chapter 518. However, we recognize that courts have ordered payment of attorney fees for legal services provided by the public defender, legal-services organizations, and others who do not receive payment from their clients. See Brinn v. Tidewater Transp. Dist. Comm'n, 242 F.3d 227, 234-35 (4th. Cir. 2001) ("[C]ourts have consistently held that entities providing pro bono representation may receive attorney's fees where appropriate, even though they did not expect payment from the client and, in some cases, received public funding."). We also recognize that if conduct-based attorney fees are appropriate, they are an obligation imposed due to the wrongful actions of a party and that it would be an undeserved benefit for a bad actor to profit from the altruistic, pro bono work of a volunteer attorney. Finally, we acknowledge that in civil consumer protection and antitrust proceedings, parties have, as a part of a consent decree, agreed to make payment or provide goods or services to third-party governmental and nonprofit entities. However, we are not aware of any precedent for a court to order parties to pay attorney fees to entities unrelated to the provision of legal services outside a consent settlement. Also, ordering a party to contribute to a nongovernmental organization unrelated to the litigation goes beyond the appropriate role of the district court.
Here, Habitat for Humanity and Joyce Food Shelf have no apparent relationship to the litigation. They were named by respondent's pro bono attorney as his favorite charities. We conclude it was error for the district court to order payment to such organizations. The record does not disclose whether respondent's attorney may accept compensation notwithstanding his initial pro bono status. We also note that if the respondent's attorney participated in a structured volunteer-attorney program with administrative expenses, ordering payment of an amount to that organization in lieu of attorney fees would be permissible. Further, if litigation expenses were incurred, the district court may order appropriate payment. We reverse the order to pay amounts to Habitat for Humanity and Joyce Food Shelf and remand for further proceedings consistent with this opinion.
VI.
The last issue is whether the district court abused its discretion by imposing a lien on appellant's property to secure the payment of child support and attorney fees. We initially note that, depending on the results of the remand, security for the award of attorney fees may become unnecessary.
Under Minn. Stat. §§ 518.24, .57, subd. 1 (2004), the district court has discretion to secure a support obligation by sequestering or placing a lien on the obligor's property. Zagar v. Zagar, 396 N.W.2d 98, 102 (Minn.App. 1986) (security and sequestration under Minn. Stat. § 518.24); Cavegn v. Cavegn, 378 N.W.2d 636, 639 (Minn.App. 1985) (liens under Minn. Stat. § 518.57, subd. 1). And sequestered property may be used to satisfy awards of attorney fees. Minn. Stat § 518.14, subd. 1. Here, the district court imposed a lien on two properties that respondent alleged belong to appellant. As noted above, we cannot assume that the district court erred. Loth, 227 Minn. at 392, 35 N.W.2d at 546; Luthen, 596 N.W.2d at 283. Therefore, we cannot assume that the district court put, or tried to put, a lien on any interest in those properties that did not belong to appellant. See Danielson v. Danielson, 721 N.W.2d 335, 339-40 (Minn.App. 2006). The district court concluded that "[t]his lien is made to guarantee the payment of child support and attorney fees as ordered herein." In light of appellant's failures to provide the information relevant to this proceeding, we cannot say that the district court abused its discretion by imposing liens on whatever appellant's interests may be in the properties.