DA 10-0211

IN THE SUPREME COURT OF THE STATE OF MONTANA

2010 MT 261

IN RE THE MARRIAGE OF:

JILL M. LUNDSTROM,

Petitioner and Appellee,

and

DIETER SCHOLZ,

Respondent and Appellant.

APPEAL FROM: District Court of the Twentieth Judicial District,

In and For the County of Sanders, Cause No. DR 06-25

Honorable C.B. McNeil, Presiding Judge

COUNSEL OF RECORD:

For Appellant:

Quentin M. Rhoades and Robert D. Erickson; Sullivan, Tabaracci &

Rhoades, P.C., Missoula, Montana

For Appellee:

Timothy G. Goen, Attorney at Law, Thompson Falls, Montana

Submitted on Briefs: October 27, 2010

Decided: December 14, 2010

Filed:

__________________________________________

Clerk

December 14 2010
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Justice Michael E Wheat delivered the Opinion of the Court.

¶1 The Twentieth Judicial District Court, Sanders County, entered a decree dissolving

the marriage of Dieter Scholz (Scholz) and Jill Lundstrom(Lundstrom) and distributingtheir

marital estate. Scholz appeals. We affirm in part, reverse in part, and remand for further

proceedings consistent with this Opinion.

¶2 The present appeal marks the third occasion this Court has been involved in this

divorce case. See In re Marriage of Lundstrom, 2007 MT 304, 340 Mont. 83, 172 P.3d 588

[hereinafter Lundstrom I]; In re Marriage of Lundstrom, 2009 MT 400, 353 Mont. 436, 221

P.3d 1178 [hereinafter Lundstrom II]. Only the facts relevant to this appeal follow.

¶3 Scholz and Lundstrom were married on September 12, 2004. Before their marriage,

Lundstrompurchased two propertiesfromScholz. First, on November 24, 2003, Lundstrom

purchased a 77 acre parcel from Scholz, upon which Scholz’s ice-making business was

located, for $565,000. The proceeds used for the purchase were from the sale of property

Lundstrom owned in California, thus the transaction qualified for federal tax purposes as a

Section 1031 like-kind exchange. Lundstrom paid $322,643.33 to Scholz at closing, and

executed a promissory note in the amount of $242,356.67, plus interest on the unpaid

principal of 5.5% per annum. This property is also encumbered by another mortgage in the

amount of $90,000, plus interest on the unpaid principal of 10% per annum, held by Claude

I. Burlingame, Daniel Parks, and Carla Parks. This 77 acre parcel is titled in Lundstrom’s

name only. Second, on July 6, 2004, Lundstrom purchased a home and 7 acre parcel from
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Scholz for $325,000. Bank of America holds a promissory note on this property in the

amount of $238,000. This property is titled in Lundstrom’s name only.

¶4 The parties separated in October of 2005, and Lundstrom petitioned for divorce in

March 2006. The divorce proceedings were marred by continuous discovery disputes,

numerous attorney substitutions by both parties, motions for sanctions, and two appeals to

this Court. As we said previously, this case has been “an odyssey of proceedings.”

Lundstrom II, ¶ 3.

¶5 After remand in Lundstrom II, the District Court entered its Findings of Fact,

Conclusions of Law, and Decree on March 29, 2010. The District Court found that the

property transactions discussed above were premarital, thus the properties were not part of

the marital estate, and awarded the properties to Lundstrom. In awarding the properties to

Lundstrom, the District Court found that Lundstromwas solely responsible for the $238,000

debt on the 7 acre parcel. Then, it found Lundstrom owed nothing to Scholz on the

$242,356.67 promissory note on the 77 acre parcel because Scholz used the proceedsto pay

a debt to the Small Business Administration (SBA). Scholz appeals.

¶6 We restate the issues on appeal as follows:

¶7 Issue One: Did the District Court errin allowing certain evidence at the bench trial?

¶8 Issue Two: Did the District Court errin determining that both the 7 acre and 77 acre

properties were not part of the marital estate?

¶9 Issue Three: Did the District Court err in determining that Lundstrom owes Scholz

nothing on the $242,356.67 promissory note on the 77 acre property?
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STANDARD OF REVIEW

¶10 Evidentiary rulings are reviewed for an abuse of discretion. Nelson v. Nelson, 2005

MT 263, ¶ 31, 329 Mont. 85, 122 P.3d 1196. Absent a showing of an abuse of discretion,we

will not overturn a district court’s decision. Id.

¶11 In a dissolution proceeding, we review a district court’sfindings of fact to determine

whether they are clearly erroneous. In re Marriage of Crilly, 2005 MT 311, ¶ 10, 329 Mont.

479, 124 P.3d 1151. A finding of fact is clearly erroneous if it is not supported by

substantial evidence, the district court misapprehended the effect of the evidence, or our

review of the record convinces us that the district court made a mistake. Id. Absent clearly

erroneous findings, we will affirm a district court’s division of property unless there was an

abuse of discretion. Id. A district court abuses its discretion if it acts arbitrarily without

conscientious judgment or exceeds the bounds of reason, resulting in substantial injustice.

Id.

DISCUSSION

¶12 Issue One: Did the District Court errin allowing certain evidence at the bench trial?

¶13 Scholz contends that the District Court erred when, contrary to its previous order, it

allowed Lundstrom to enter evidence that was not disclosed in discovery, and allowed an

expert to testify about the value of the two properties. Scholz contends this was “trial by

surprise.”

¶14 The District Court did not abuse its discretion when it admitted evidence and

testimony at the bench trial. We remanded in Lundstrom IIspecifically for “reconsideration
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of appropriate sanctions and an equitable distribution of the marital estate.” Lundstrom II,

¶ 21. We found that “the District Court’s findings of fact underlying the distribution of the

marital estate [were] clearly erroneous because they [were] not based on substantial evidence

in the record” because the District Court had simply adopted Scholz’s proposed distribution

as a sanction for Lundstrom’s violations of court orders. Id. at ¶ 20. The District Court did

not comply with § 40-4-202, MCA, and the case was remanded for the District Court to

make the appropriate findings of fact and to equitably distribute the parties’ marital estate.

¶15 Consistent with Lundstrom II, the District Court held a bench trial at which theparties

could submit evidence asto how the parties’ assets, liabilities, and personal property should

be equitably distributed. That the District Court would receive evidence should not have

been a surprise to Scholz, given our ruling in Lundstrom II. Further, consistent with

Lundstrom II, the District Court reconsidered the previous sanctions against Lundstrom,

namely that she could not submit into evidence anything not revealed during discovery. The

District Court stated, “[n]either party has played by the rules. This court ordered bothparties

to file their proposals four years ago and neither one of you have done it. So you’ve thrown

discovery and deadlines and any sanctionsfor violation ofthat out the window.” Based upon

the record before the Court and the history of this case, the District Court did not abuse its

wide discretion when it allowed Lundstrom to submit evidence and expert testimony at the

bench trial.

¶16 Issue Two: Did the District Court errin determining that both the 7 acre and 77 acre

properties were not part of the marital estate?
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¶17 Scholz argues that the District Court abused its discretion when it determined that

both the 7 acre and 77 acre parcels were Lundstrom’s premarital property because the

District Court ignored the substantial contributions Scholz made to the properties after the

sales and disregarded the nature of the transaction regarding the 77 acre parcel.

¶18 In a dissolution proceeding, the District Court shall “equitably apportion between the

parties the property and assets belonging to either or both, however and whenever acquired

and whether the title thereto is in the name of the husband or wife or both,” considering all

the circumstances of a particular marriage. Section 40-4-202(1), MCA; Arnold v. Sullivan,

2010 MT 30, ¶ 23, 355 Mont. 177, 226 P.3d 594. For property acquired before the marriage,

the district court shall consider the contributions of the other spouse. Section 40-4-202(1),

MCA. This means that, regardless of who holds title, assets belonging to a spouse prior to

the marriage are not part ofthe marital estate unlessthe non-acquiring spouse contributed to

the preservation, maintenance, or increase in value of that property. Arnold, ¶ 28. If the

non-acquiring spouse contributes to the property’s preservation, maintenance, or

appreciation, the district court should award the non-acquiring spouse his or her equitable

share ofthat preserved, maintained, or appreciated value attributable to his or her efforts. Id.

However, the non-acquiring spouse is not entitled to his or her equitable share of the

property’s increased value when the appreciation was due simply to market factors. Id.

¶19 The District Court found both the 7 acre and 77 acre properties were Lundstrom’s

premarital property, and found that Scholz made no substantial contributions to either
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property after selling themto Lundstrom. Therefore, the two properties were not part ofthe

marital estate.

¶20 Regarding the 7 acre property and home, Scholz contends he made or contributed to

substantial improvementsto the home,such as extending the residence by approximately800

square feet, adding guest quarters, remodeling the kitchen, and constructing an office.

Scholz claims he paid for these improvements with the proceeds of the sale of the 77 acre

parcel to Lundstrom. Regarding the 77 acre property, Scholz contends he and Lundstrom

constructed a warehouse on the parcel; he contributed approximately $44,000 to pay

contractorsto work on the warehouse; and he paid for the roof, plumbing, and concrete for a

partially completed log cabin on the property.

¶21 Lundstrom’s testimony at the bench trial was that Scholz made improvements to the

home on the 7 acre property before he sold it to her. Scholz’s testimony reflects various

improvements were made to the home with a portion ofthe proceedsfromthe earlier sale of

the 77 acre property to Lundstrom. However, Scholz did not testify as to when these

improvements occurred. Lundstrom paid all the taxes associated with the property, and it

wastitled in her name only. Based upon the record before the District Court, itsfindingsthat

the 7 acre property and home were Lundstrom’s premarital property, and that Scholz did not

make substantial contributions to that property, are not clearly erroneous.

¶22 The record showsthat Scholz’s contributionsto the warehouse on the 77 acreproperty

were made before selling it to Lundstrom. It appears from the record that the log cabin

project began in 2003, prior to the sale ofthe 77 acre property to Lundstrom. However, it is
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difficult to determine fromthe record when the log cabin construction started, and when orif

any improvementsto the log cabin were made after the marriage. Again, Lundstrompaid all

the taxes associated with the property, and it was titled in her name only. On the record

before it, the District Court’s findings that the 77 acre property was Lundstrom’s premarital

property, and that Scholz did not make substantial contributions to that property, are not

clearly erroneous.

¶23 The District Court’s findings of fact regarding these two properties are not clearly

erroneous, nor did the District Court act arbitrarily when awarding the two properties to

Lundstrom and finding that Scholz did not substantially contribute to the properties. There

was no abuse of discretion. We affirm.

¶24 Issue Three: Did the District Court err in determining that Lundstrom owes Scholz

nothing on the $242,356.67 promissory note on the 77 acre property?

¶25 Scholz assertsthe District Court erred when it found that Lundstromowes nothingon

the $242,356.67 promissory note because Lundstrom admits she has made no payments on

the note and it is still due. Lundstrom maintains that Scholz owed her money from various

loans she made to him.

¶26 After reviewing the record, we are convinced the District Court made a mistakewhen

it found that Lundstrom owed nothing to Scholz on the $242,356.67 promissory note. In

finding the 77 acre property was Lundstrom’s premarital property, the District Court treated

the sale of the property as essentially an arm’s-length transaction between Scholz and

Lundstrom. As part ofthat transaction, Scholz agreed to transfer the property to Lundstrom
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in consideration for a $322,643.33 down payment, and a promissory note in the amount of

$242,356.67, plus interest on the unpaid principal of 5.5% per year. Scholz transferred the

property to Lundstrom, and it is titled in her name only. Lundstrom paid all the taxes and

insurance on the property. Lundstrom did not make payments on the promissory note.

¶27 The District Court found that “[Scholz] was relieved of his $523,000 debt to SBA as

part of this transaction and [Lundstrom] owes nothing further on the [$242,356.67] note to

[Scholz].” The District Court’s order states no other reason why Lundstrom should not be

required pay to Scholz the full amount due underthe promissory note. What Scholz didwith

the proceeds of the sale should have no bearing on Lundstrom’s obligation to pay the full

agreed upon price for the 77 acre property. In consideration for payment of the purchase

price, including the promissory note, Lundstrom received the 77 acre property free of

encumbrances. It appears both Lundstrom and Scholz received the full benefit of the

bargain. Thus, the record isinadequate to explain why the District Court relievedLundstrom

of her obligation to pay Scholz the full amount due under the promissory note, and the

District Court’s findings are therefore clearly erroneous.

¶28 Because we are unable to determine why the District Court relieved Lundstromofher

obligation to pay the promissory note, we must remand to the District Court to clarify its

findings of fact and conclusions of law to justify relieving Lundstrom of her obligation to

pay the promissory note, or make any other modifications it deems necessary to insure an

equitable division of the marital estate.

CONCLUSION
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¶29 The District Court is affirmed in part, reversed in part, and the case is remanded for

further proceedings consistent with this Opinion.

/S/ MICHAEL E WHEAT

We Concur:

/S/ MIKE McGRATH

/S/ PATRICIA COTTER

/S/ JIM RICE

/S/ BRIAN MORRIS