Michigan Supreme Court Lansing, Michigan

Robert P. Young, Jr.,
Chief Justice

Michael F. Cavanag h Marilyn Kell y Stephen J. Markma n Diane M. Hathawa y Mary Beth Kell y Brian K. Zahra,

J ustices 

# Order

October 7, 2011

142682

BETH C. MATTER, Plaintiff-Appellant,

v SC: 142682 COA: 293421 Oakland CC Family Division: 2005-708339-DO RICHARD C. MATTER, Defendant-Appellee.

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On order of the Court, the application for leave to appeal the January 20, 2011 judgment of the Court of Appeals is consid ered, and it is DENIED, because we are not persuaded that the question presented s hould be reviewed by this Court.

M ARILYN K ELLY , J. ( dissenting ).

I dissent from the Court’s order denying plain tiff’s application for leave to appeal and would reverse the Court of Appeals decisi on. I agree with the dissenting opinion of

that court which would have affirmed the circu it court decision. The circuit court held an extensive evidentiary hearing and determined that defenda nt’s gross income for the purpose of calculating his spousal suppor t includes certain amounts he treated as investment or passive income. It granted pl aintiff’s motion for an increase in spousal support, but the Court of Appeals reversed that decision.

The underlying facts are as follows. Soon after the parties’ divorce, defendant left his employment as an oncologist at a large Michigan hospital and relocated to Kentucky where he took employment with United Surgic al Associates PSC (U SA). He soon chose to become a shareholder of USA. This requi red him to purchase shares in USA’s captive medical equipment affiliate, Radiation On cology Associates, PLLC (ROA). His employment included work for another USA affiliate, United Radiation Oncology (URO), which operates cancer treatment cent ers and uses ROA’s medical equipment to treat USA’s cancer patients.2

Under the terms of the partie s’ judgment of divorce, plai ntiff’s spousal support is a percentage of defendant’s gross earni ngs. The earnings comprised income from defendant’s employer and from Premier Radia tion Oncology Services P.C. The latter was a captive affiliate of defendant’s employe r, and the income it generated was “passive

interest or investment income.”

While in Michigan, defendant’s averag e annual income was $390,000. In 2006- 2007, his first year in Kentucky , defendant asserted that the income subject to his spousal support obligation was $374,805. But his W-2 reported income of $466,174. Defendant

claimed that the difference between his W-2 in come and his salary came from returns on his investments in USA and ROA, a sum of r oughly $90,000. And, he claimed that the amount of spousal support he sh ould pay must be based solely on his salary. He viewed it irrelevant that the base used in Michig an included income from his investment in a captive affiliate corporation of his employer there.

The circuit court disagreed and ruled that his divorce settlement contemplated that the income reported on his W-2 was defendant ’s income for the pur poses of calculating his spousal support obligation. The court poin ted out, in addition, that the language of the Michigan Child Su pport Formula supports its position. The Formula would interpret defendant’s income as his “earnings generate d from a business, partnership, contract, self-employment, or other similar arrangement or from rentals,” and additionally include “. . . interest, [and] dividends . . . to the exte nt that they represent income or may be used to generate regular income.” MCSF 2.01(C)(2) and (5).

The trial court reasoned that defendant r ealized the return on his investment in ROA and URO solely as a result of his employ ment. Consequently, that income was part of his gross earnings from his employment. Additionally, the court found that defendant did not act in good faith in leaving his empl oyment in Michigan. His move to Kentucky stripped plaintiff of her interest in hi s supplemental employee retirement plan.

However, the Court of Appeals majority found the divorce judgment unambiguous and held that the plain langu age of the parties’ agreemen t excluded consideration of

defendant’s investment income from USA and R OA. It also held th at defendant did not breach the implied covenant of good faith and fa ir dealing, because he did not violate any of the terms of the partie s’ settlement agreement.

The Court of Appeals majority failed to grasp the equitable nature of spousal support. It also failed to recognize th e ambiguity in the settlement agreement and incorrectly applied a de novo standard of review. I agree with the Court of Appeals

dissent that this case should have been review ed for clear error. Ha d that standard been applied, the judgment would not have been found to be clearl y erroneous, for the reasons

stated in both the Court of Appeals dissenting opinion an d the circuit court opinion.I, Corbin R. Davis, Clerk of the Mi chigan Supreme Cour t, certify that the foregoing is a true and complete copy of the order entered at the direction of the Court.

_______________________________________ __ Clerk October 7, 2011

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The circuit court determined that, for purposes of the judgment, the definition of

“investment income” was not the same as th e definition used in the Internal Revenue Code. The proper analysis must take its guidance from the Child Support Formula. Using that guide, it is apparent that de fendant’s income included the gains from his employment and labor while working with URO. The income accumulated from ROA and URO was not passive investment income, especially given the relationship between those captive affiliates. Defendant’s inco me increased as the number of patients he

treated at URO increased the number of patients using ROA’s equipment.

Additionally, the machinations that defe ndant employe d to avoid the classification of this income as gross income beg for th e application of equita ble principles by the

circuit court. Plaintiff claimed in the tria l court, and defendant has yet to rebut, that defendant represented during the divorce procee dings that he would c ontinue to work at the Michigan hospital. Plai ntiff was unaware when the se ttlement agreement was written that defendant would terminate that employmen t just two months after the judgment of

divorce was entered. Defendant led her to be lieve that her rights to defendant’s unvested supplemental employee retirement plan with the Michigan hosp ital were secure.

The application of equitable principles, always appropriate in domestic relations matters, requires a different result under the fact s of this case than the Court of Appeals reached. I would reverse the Court of Appeals decision.

Z AHRA , J., did not participate because he was on the Court of Appeals panel.