Opinions, July 28, 2015: There is No Bright Line Rule for Bonuses.

UPDATED: The Supreme Court reversed this opinion on May 12, 2017.

The Fourteenth Court of Appeals has released its published opinion in Loya v. Loya, No. 14-14-00208-CV (Tex.App.–Houston [14th Dist.] Jul. 28, 2015) with Justice Frost dissenting. This is an important decision regarding discretionary bonuses paid post-divorce which I imagine will be appealed. The take away: “[A] bonus paid post-divorce, but alleged to be based in part on work performed during the marriage, could be subject to proof that some portion of this bonus is community property.”

After 28 years of marriage, Leticia Loya filed for divorce in 2008 from Miguel Loya.  During and after the marriage, Miguel was an employee of Vitol, Inc. where he was eligible for, but not entitled to, a discretionary bonus:

You will continue to be considered for an annual bonus based on various performance parameters considered by [Vitol]. Bonuses are completely at the discretion of [Vitol] and, if paid, are typically paid in March/April each year.

Miguel regularly received bonuses. His bonus paid in 2010 was awarded to him shortly before the divorce which was placed into a bank account that was awarded to Leticia in the MSA. Based on this fact, Miguel argued Leticia was aware that Vitol would potentially pay him a bonus in 2011. (As the dissent points out, the parties were married for 28 years and Leticia should have known the regularity with which Miguel received annual bonuses)

Leticia presented the MSA to the trial court and requested it be entered. The trial court announced the parties’ divorce on the record, set an entry date, and ordered the parties to draft their final documents. Shortly after that, Leticia moved to set aside the MSA because the parties “did not reach an agreement as to the division of… the community’s interest in Miguel Angel Loya’s bonus to be paid in 2011, nearly half of which pertains to [Miguel]’s services through June 13, 2010.”

The MSA, which also served as an immediate partition, included the following provision: “All future earnings from each party are partitioned to the person providing the services giving rise to the earnings.”

On June 22, 2010, the trial court denied Leticia’s motion to set aside the MSA and signed the parties’ final decree of divorce which incorporated an AID setting out the terms of the MSA (though the AID was not signed by either party). The decree and the AID both provided that any community assets of the parties not divided by the parties’ agreements would be subject to future division. Leticia did not appeal from the decree.

On March 15, 2011, Miguel received his bonus for $4.5 million ($2.85 m net after taxes and retirement). In June 2012, Leticia filed an original petition for post-divorce division of property seeking to divide the 2011 bonus.

Miguel moved for partial MSJ on the grounds that: 1) the bonus was not community property; 2) if the bonus was subject to division, it was partitioned to Miguel under the MSA; and 3) Leticia’s claim was barred by res judicata because the trial court considered the division of the bonus through Leticia’s motion to set aside the MSA.

Leticia’s response alleged there were fact issues on whether: 1) the bonus was community property and subject to division, 2) the bonus was awarded to Miguel in the divorce, and 3) Leticia’s suit was barred by res judicata.

On January 6, 2014, the trial court signed a take-nothing judgment on Leticia’s petition.

On appeal, Leticia asserted four issues: 1) Miguel failed to conclusively prove that the bonus was his separate property; 2) alternatively, there is a fact issue concerning the characterization of the bonus; 3) the bonus was not partitioned in the decree of divorce; and 4) res judicata does not apply because the decree did not award the bonus to anyone. The Court of Appeals held that because the bonus was not considered, disposed of, or partitioned in the decree, Leticia raised a fact issue concerning characterization of the bonus and reversed the summary judgment, remanding the case to the trial court for further proceedings.

The COA first discussed the third and fourth issues, Leticia’s res judicata and partition challenges.

Res judicata, the court noted, does not apply to post-divorce partitions where the decree has not disposed of an asset. In such cases, partition is appropriate. “The MSA, the divorce decree, and the AID do not mention the 2011 bonus,” the COA stated.  Miguel argued the trial court “considered” the bonus, barring Leticia from re-litigating the issue, because Leticia’s motion to set aside the MSA was based in part on the failure of the parties to divide the bonus. The Court of Appeals disagreed, noting Leticia did not seek to divide the property in her motion; rather, she sought to set aside the MSA based on lack of mutual assent.  As such, the COA concluded Miguel’s 2011 bonus was not considered, divided or partitioned in the MSA, the AID, or the decree.

Turning to characterization, the COA looked to its prior opinion in Sprague v. Sprague, 363 S.W.23d 788, 801-802 (Tex.App.–Houston [14th Dist] 2012, pet. denied) which considered whether bonuses awarded during a marriage for work performed at least partially before the marriage could be established as a spouse’s separate property. In that case, evidence of the characterization of the bonuses was improperly excluded from the fact-finder because the spouse was entitled to present evidence that portions of the bonuses were awarded based on work performed before the marriage. “In other words, there is no bright line rule for bonuses: a bonus paid during marriage may be based in part on work performed prior to the marriage, which would make that portion of the bonus a spouse’s separate property.” Extending the logic of Sprague, the COA said a bonus paid post-divorce but alleged to be partially based on work performed during the marriage, could be subject to proof that some portion of the bonus is community property.

Miguel’s summary judgment evidence established the bonus was paid to him in March 2011, but Leticia submitted an affidavit stating the bonus was based in part on services  performed during the marriage and before divorce. And, the court noted, Miguel did not establish that the 2011 bonus was not earned, at least in part, based on services he provided during the parties’ marriage. Thus, the court concluded, Leticia raised a genuine issue of material fact concerning whether some of the 2011 bonus was community property.

Before wrapping up the opinion, the majority addressed an argument of the dissent which “appears to urge that ‘future earnings’  are measured solely by the ex-spouse’s receipt of the ‘earning.'” The majority stated this ignored the language of the MSA at issue which partitioned future earnings to the “person providing the services giving rise to the earnings.” Based on this language, the Court of Appeals held that the MSA at issue indicated that the character of the bonus would be based on whether the work was performed during the marriage or not.

The dissent, addressing the exact same provision, reached the opposite conclusion. The dissent argued that the MSA’s provision (“All future earnings from each party are partitioned to the person providing the services giving rise to the earnings.”) was unambiguous, looking to the Texas Family Code definition of “earnings” which includes payment to or due to an individual, regardless of source and how denominated, plus “wages, salary, compensation received as an independent contractor, overtime pay, severance pay, commission, bonus, and interest income.” Tex. Fam. Code 101.011. The parties, the dissent argues, allocated all future earnings and income to Miguel as part of their settlement embodied in the MSA concerning the division of the community estate, which clearly includes the 2011 bonus.

The dissent disagrees with the majority’s reliance on Sprague, finding that even if a portion of the bonus could be characterized as community property, the parties partitioned the community property to Miguel by agreement when they allocated all future earnings to Miguel, relying upon the dictionary definition of “future.” The majority held that a bonus based on work performed during the marriage might be proportionately characterized as community property, but the dissent argued that none of the bonus came into existence until after the divorce and, under the parties’ agreement, the entire bonus fell under the provision partitioning future earnings to Miguel.

In a footnote, the dissent notes at length that Leticia should have known that Miguel would receive a bonus after the divorce, a fact the majority noted as well. What both opinions appear to be hinting at is that the 2011 bonus should have been explicitly part of the settlement reached at mediation.

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Opinions, July 23, 2015

Three opinions this morning to discuss: one from the First District Court of Appeals and two from the Fourteenth (the second of which is a published opinion on the proper application of the Family Code’s provisions for guideline support and adult disabled child support).

This morning, the First Court of Appeals released its memorandum opinion in In re D.L.D. Jr., L.L.S., J.J.S. and H.N.S., No. 01-15-00160-CV (Tex.App.–Houston [1st Dist.] Jul. 23, 2015) in which the Court of Appeals affirmed the termination of the mother’s relationship to her four children. On appeal, the mother presented two issues: 1) the evidence was not legally or factually sufficient and 2) the trial court engaged in misconduct during trial. Both issues were unsurprisingly overruled, but the second issue was certainly more colorful than most termination opinions.

The Court of Appeals reviewed the record which established: the mother was living in a homeless shelter with the four children; this was their second shelter after they were asked to leave the first shelter because of fights between the mother and her sister (who also lived in homeless shelters); the second shelter would be asking the mother and her children to leave after too many violations of the second shelter’s policies; the mother had no place to take the children; the DFPS was appointed temporary managing conservator and placed the children in foster care; the mother agreed to follow a family service plan; two of the children had medical needs which the mother had not attended to; the mother was both the instigator and victim of a cycle of domestic violence with her sister; while the case was pending the mother failed to obtain housing or employment, tested positive for cocaine, failed to undergo scheduled drug screening, was convicted of prostitution, did not attend visits with her children, and did not keep in touch with her caseworker. The oldest child, D.L.D., began living with his father and was doing well; the three other children were doing well in their foster homes. The Court of Appeals upheld the termination.

In her second issue, the mother accused the trial court of misconduct. In her first example of alleged misconduct, the mother argued the trial court judge violated Canon 3B(3) of the Texas Code of Judicial Conduct which states the judge must require order and decorum in proceedings before the judge. The mother asserted the judge violated this rule based on an exchange during cross-examination of D.L.D.’s father, who is a manager of a Burger King in Louisiana:

[Unknown father’s counsel:] Have you tried the Texas Double Whopper yet?
[Children’s Attorney Ad Litem:] Objection rel—asked and answered actually.
[Unknown father’s counsel:] No. Not since—November he may have tried it already. Pass the witness.
THE COURT: I’m going to leave you—well, no. You can go.

This, the mother asserted, was evidence of how the trial court allowed “silliness to pervade a very serious proceeding.” The Court of Appeals disagreed, finding the episode was a quick and “self-limiting” blip. Still, the mother does have a point that this is a goofy question to ask and, surprisingly, it was already asked and answered in the prior hearing. This attorney must have a thing for Double Whoppers.

Next the mother alleged the judge “intentionally disrespected” her based on the following:

Q. Have you ever been in jail?
A. No.
Q. And how often do you prostitute?
A. That was only one time.
THE COURT: Well, that’s bad luck, huh?
[Mother]: Uh-huh.

This comment, the mother asserted, “lacked sensitivity and dignity” and was “insensitive and disrespectful” to her. The Court of Appeals noted that the transcript does not indicate the judge’s tone or facial expression and, moreover, since it was a bench trial, there was no jury to hear it even if it had been improperly flippant.

The mother also alleged that the judge was improperly prejudiced based on the following:

Q. And you would agree with me that you still don’t have a safe place to live as to today?
A. Okay. I was getting to that.
[The Department’s counsel]: Objection. Nonresponse.
[Mother]: Well, can I just — I do have paperwork.
THE COURT: Shh.
[Mother]: I do have —
[the Department’s counsel]: Shh. Listen.
[Mother]: — paperwork.
THE COURT: Listen.
[Mother]: And I do have —
THE COURT: Ma’am, listen to me.
[Mother]: Y’all not giving me —
THE COURT: Ma’am. Listen to me.
[Mother]: Yes, sir. Yes, sir.
THE COURT: Okay? Just —
[Mother]: Yes, sir.
THE COURT: — answer the —
[Mother]: Yes, sir. Yes, sir. Yes, sir. I just want to show her that I do have —
THE COURT: Shut up.
[Mother]: Oh, help me Jesus.
THE COURT: Just answer her question. Your attorney will — [Mother]: I’m not —
THE COURT: Listen to me. Your attorney will have an opportunity to ask you questions. That’s how this game is placed [sic]. Okay? So, if she asks you if you have a safe and stable place to stay right now, the answer is yes or no.
A. No.
THE COURT: There you go. You can explain by way of your attorney when it’s your turn. Okay?

The Court of Appeals found that this was within the court’s discretion and that it was only after asking the mother to be quiet six times did the court tell the woman to shut up.

Finally, the Court of Appeals noted that none of the complained-of conduct likely caused the rendition of an improper judgment.

Moving on to the Fourteenth’s opinions, the Fourteenth Court of Appeals released one memorandum opinion in Reynolds v. Reynolds, No. 14-14-00080-CV (Tex.App.–Houston [14th] Jul. 23, 2015) and its published opinion in In re JMW, No. 14-14-00135-CV (Tex.App.–Houston [14th Dist] Jul. 23, 2015).

The Reynolds case is just the latest iteration in what appears to be a near-decade-long saga. The parties divorced in 2008. Wilma Reynolds appealed the division of the marital estate but the Court of Appeals affirmed the trial court’s division in 2010 because, it concluded, Wilma was estopped from challenging the decree on appeal as a result of her acceptance of the benefits of the property division. Three years later, Wilma filed a bill of review seeking to revisit the decree. Specifically, she alleged that David Reynolds introduced false evidence and testimony regarding the value of the community estate. The trial court denied the bill of review (as did a visiting judge presiding over Wilma’s motion for reconsideration).

On appeal, Wilma alleged two issues but the Court of Appeals only addressed the second one because it was dispositive: the trial court abused its discretion by denying the bill of review when she presented a prima facie case. Because a party cannot use a bill of review action as an additional remedy after losing an appeal, Wilma’s bill of review was properly denied.

Finally, the Fourteenth released a published opinion in In re J.M.W. In this case, the mother sought support for an allegedly adult disabled child. The son was born in October 1985; the mother and father divorced in January 1987. The father stopped providing support for the son once he graduated from high school at age 19. The son has lived with the mother and has little contact with his father. The son was diagnosed with ADHD and has been violent to his mother and has destroyed things in her house. He has had only one job, at McDonald’s for six months, but he was fired because of his angry outbursts. He is now employed in a workshop program which pays him $758 annually. The mother sought and the son now receives supplemental social security and medicaid benefits ($473.24/mo.) though his necessary monthly expenses are almost $1,000 more than his income. When the son was 25, in April 2011, the mother filed suit seeking support form the father. The psychiatrist appointed in the case stated the son is incapable of self-support and living independently and recommended that the son be transferred to a residential placement. The mother is a special education teacher who makes $1,620/mo. The father’s income in sales was $4,000/mo. plus 25% commission; his and his current wife’s annual income was, on average, $150,000.

On appeal, the father challenged the child support award, arguing the trial court: (1) disregarded the child support guidelines, (2) improperly construed section 154.306 of the Texas Family Code, (3) included or substantially considered the income from Father’s new spouse, and (4) grossly exceeded the guidelines. Father also argues that the trial court abused its discretion by: (5) refusing to reopen the evidence to include his premarital agreement; (6) failing to make required statutory findings; and (7) awarding attorney’s fees, considering all the other errors.

The Court of Appeals agreed that the trial court improperly calculated the award and sustained the father’s first, second, and sixth issues. Specifically, the mother argued that the trial court must look exclusively to the provisions of Tex. Fam. Code 154.306 when awarding support for an adult disabled child. The father argued that the trial court abused its discretion by refusing to consider and apply general provisions from other parts of the code. After a lengthy discussion concerning other provisions of Chapter 154 and the plain reading of the statutes, The Court of Appeals agreed with the father, finding the trial court abused its discretion by failing to consider presumptive guideline support required by subchapter C of Chapter 154 of the code. Additionally, the father argued the trial court abused its discretion by not issuing findings under 154.130 upon request when the guidelines are not followed. The Court of Appeals agreed on that point as well, reversing and remanding the case for further child support calculation proceedings.

Because the third and fourth issues essentially challenged the sufficiency of the evidence supporting the judgment, the Court of Appeals did not reach these issues because the judgment was reversed for the above reasons.

As to the fifth issue, the father argued the trial court abused its discretion by not reopening the evidence to include the father’s 2002 premarital agreement with his current wife which segregated their incomes. The Court of Appeals disagreed, finding the father did not establish that the premarital agreement was unavailable to him at trial, and, moreover, the premarital agreement’s provisions segregating the spouses’ income would affect the application of the family code’s prohibition against including a spouse’s net resources for purposes of child support.

Opinions, July 21, 2015

The Fourteenth Court of Appeals released its Memorandum Opinion this morning in In re W.J.B. & J.B., No. 14-15-00186-CV (Tex.App.–Houston [14th Dist.] Jul. 21, 2015) affirming an order signed by the trial court denying a motion to reinstate after the case was DWOPed. The Court of Appeals affirmed.

In this case, the maternal grandfather of the two children at issue had been the SMC since February 2010. In February 2013, the mother of the children filed a modification suit, seeking to be named SMC in place of the maternal grandfather. The children were placed with DFPS in March 2013. That same month, DFPS filed a petition to terminate the mother and father’s rights. The mother then filed an affidavit of relinquishment. At trial in August 2014, the associate judge stated the termination of the mother’s rights was granted and the paternal grandfather would be named SMC, on DFPS’s recommendation. A final order was filed for entry but no written judgment was signed.

In September 2014, the judge of the 311th filed a voluntary recusal and the case was transferred to the 257th. After transfer, the 257th’s docket sheet stated the rendition at trial was set aside sua sponte on the Court’s own motion. The entry was not signed or initialed and no written order was entered. In January 2015, the case was dismissed by the trial judge of the 257th. DFPS filed a motion to reinstate, render judgment on the August 2014 rendition, enter the decree and reopen for additional evidence. The court denied the motion and DFPS appealed.

On appeal, the DFPS asserted three issues: 1) the trial court erred in dismissing the case on the belief the case had already been dismissed as a matter of law under section 263.401 of the Family Code because that section is not jurisdictional and the case included a private lawsuit–the mother’s modification suit–that was not subject to dismissal under section 263.401; 2) the trial court’s finding of insufficient evidence to support the AJ’s recommendation to terminate both parents’ right is not a legal basis to deny the motion to reinstate; and 3) because no record was taken of the dismissal hearing, the case should be reversed and reinstated on the trial court’s docket.

In response to the DFPS’s first issue, the Court of Appeals said it’s true the Texas Supreme Court has held dismissal dates governing termination and child protection proceedings where DFPS has temporary custody are not jurisdictional. But the Court of Appeals also noted a trial on the merits had not occurred within the statutory limitation of one year and the trial court could not extend the limitation sua sponte. Rather, the statute requires a trial court to make specific findings supporting an extension. The 257th determined that the 311th had ordered a new date of dismissal of September 1, 2014 without making the appropriate findings and therefore abused its discretion in doing so. Accordingly, the Court of Appeals found the trial court did not abuse its discretion in denying the motion to reinstate. The Court of Appeals also found that DFPS’s allegation that the trial court erred by dismissing a case which included a private lawsuit (mother’s mod claim), that alleged error would not be basis for overturning the dismissal of DFPS’s suit or a finding the trial court erred in denying DFPS’s motion to reinstate. DFPS’s first issue was overruled.

Because the Court of Appeals overruled DFPS’s first issue, it was unnecessary for the court to reach the second issue of sufficiency of the evidence.

As for the third issue, the Court of Appeals overruled it, finding that the so-called hearing was no more than a docket call. Because the one year deadline to proceed to trial on the merits was neither satisfied nor properly extended, the final issue was overruled.