Opinion ID: 1842171
Heading Depth: 1
Heading Rank: 3

Heading: Is the Agency community property subject to partition?

Text: Ms. Coudrain asserts two theories to support her position that the Agency is community property subject to partition. [1] First, she argues that the lower courts erred in finding that the Agency was a non-entity and not a thing subject to partition because the proper inquiry is whether the Agency is property, which she argues is anything that meets the definition of the patrimony of Mr. Lanza. Second, she argues that the Agency is a community enterprise under La. C.C. art. 2369.3, in which she is entitled to share in the co-owned income generated thereby. Before an asset can be classified as community or separate, it must first be identified as property. Hare v. Hodgins, 586 So.2d 118, 122 (La.1991). Ms. Coudrain argues that property comprises not just things but is defined in the broadest sense of the word as follows: the word property is used broadly to denote rights forming part of a person's patrimony, and narrowly rights conferring on a person a direct and immediate authority for the use and enjoyment of a thing that is susceptible of appropriation. Thus, leases, contractual or delictual causes of action, interests in pension plans, the rights to pursue employment and to conduct a business, and uncopyrighted designs are property in the broad sense. All real rights, such as ownership, personal servitudes, predial servitudes, and mineral servitudes, are property in the narrow sense. 2 A.N. Yiannaopoulos, Louisiana Civil Law Treatise, Property, § 1 (1967). In Due v. Due, this Court adopted this broad definition of property in the community property context, concluding that property, in its broad sense, denotes all patrimonial rights and that the civil law concept of patrimony includes the total mass of existing or potential rights and liabilities attached to a person for the satisfaction of his economic needs. 342 So.2d 161, 165 (La.1977) (citing Yiannopoulos, supra ). However, as explained by Professors Spaht and Hargrave, while it appears that the assets to be shared should be those that are considered patrimonial assets in a broad sense, the dividing line is unclear and [i]t also appears impossible to determine that a right is or is not patrimonial for all purposes. Katherine S. Spaht and W. Lee Hargrave, 16 Louisiana Law Treatise, § 2.3, pp. 26-27. As a pertinent example, they explain that while some cases have referred to one's ability to work and enjoy the fruits of his labor as a patrimonial right, that is only patrimonial from a substantive due process standpoint. Id. The ability to work and enjoy wages would not be patrimonial in the sense that it would be included as a community asset because it is implicit in the Civil Code's scheme that only wages earned during the community are community property. Id., § 2.3, p. 27. Thus, whether an asset is patrimonial under the broad definition is not determinative, and the decision to be made for a particular asset will be one that has to be determined in light of basic policies and problems related to how the asset functions and how it was produced. Id. In addition, Professor Spaht notes that while anything capable of pecuniary evaluation may be a patrimonial right, in order to be community property, it must also be classified as community by the legislation. . . Id., § 2.8, p. 39, n. 4. Perhaps the broadest view of a patrimonial right found to be community property was taken in Due, supra, where this Court held that a lawyer husband's contingency fee contract acquired during the community creates in the husband a patrimonial asset, i.e., (in ordinary language) `property,' . . . and which (to the extent that his labor and industry contribute during the marriage . . .) is an asset of the community, even though the attorney's right to collect this fee was conditional and uncertain. [2] Consequently, the Court held that the ex-wife was entitled to obtain information regarding the existence and value of these contracts acquired during the marriage and to the inclusion of these contracts in an inventory of community property. However, we specifically did not reach the issue of whether her right to share in the community's share of the proceeds accrued when and if the fee was collected or whether she was entitled to a present accounting in the partition of the estimated value at the date of dissolution, which is, in effect, the issue before us today. In addressing the distinct issues involved in this case, multiple factors emerge which mitigate against classifying the Agency as a community asset subject to partition. First and foremost, pursuant to the agency agreement confected between Mr. Lanza and State Farm, Mr. Lanza has no ownership interest in the Agency. Neither the State Farm Agent's Agreement nor any interest thereunder can be sold, assigned or pledged by the State Farm agent. In addition, no right in any sum due or to become due to a State Farm agent can be sold, assigned or pledged absent prior written consent of State Farm. The agent owns no book of business which would become his upon termination of the Agency. In the event of the death, retirement, and/or termination of an agent, neither the agent nor his heirs receive service compensation for anything other than work performed up until the death, retirement or termination of the agent. All information provided to an agent during the course and scope of his term as a State Farm agent are trade secrets wholly owned by State Farm and are the sole and exclusive property of State Farm. All monies collected by the agent, with the exception of service compensation received from State Farm, are the absolute property of State Farm. Once an agent's relationship with State Farm ends, all clients, income, and information related to those clients are the property of State Farm. In the event an agent dies, retires, or is terminated, the entirety of the policies previously serviced by him would be transferred to another agent. The new agent would receive the service compensation for servicing those policies. The State Farm Agent Agreement can be terminated at will by either State Farm or the agent. At such time, any and all right to receive service compensation from State Farm ceases based on work performed to that date. State Farm furnishes agents with manuals, forms, records and such other materials and supplies as State Farm deems advisable to provide and all such property remains the property of State Farm. Finally, State Farm retains the ultimate authority to prescribe all policy forms and provisions, to set the amount and determine premiums, fees and charges, to determine the rules governing the policies, and governing the adjustment of payment of losses. Considering the above factors, we find Mr. Lanza's rights under the State Farm Agency Agreement do not constitute property rights in the community property law context. Thus, we reject Ms. Coudrain's argument that the trial court erred in finding that the Agency was a non-entity and not a thing subject to partition as the Agency does not meet even the broader definition of patrimony. [3] Ms. Coudrain next argues that the Agency is a community enterprise under La. C.C. art. 2369.3 [4] , in which she is entitled to share in the co-owned income generated thereby. La. C.C. art. 2369.3 provides: A spouse has a duty to preserve and to manage prudently former community property under his control, including a former community enterprise, in a manner consistent with the mode of use of that property immediately prior to termination of the community regime. He is answerable for any damage caused by his fault, default, or neglect. A community enterprise is a business that is not a legal entity. Ms. Coudrain contends that the Agency is a business that is not a legal entity, and as such is a community enterprise under La. C.C. art. 2369.3. Ms. Coudrain reasons that the legislature would not have imposed a duty to preserve and to manage prudently former community property under his control, including a former community enterprise. . . if community enterprises, i.e., businesses that are not legal entities, were not community property. However, this Civil Code article's expansive definition of a community enterprise to include a business that is not a legal entity cannot be interpreted to circumvent the traditional definition of property under the Louisiana Civil Code. The community enterprise must still qualify as property under Louisiana's community property laws. [5] We note that Ms. Coudrain does not make a claim for partition of the community enterprise good will, nor does she assert a claim for the Agency's office furnishings, fixtures, or equipment. She does not argue that the agency constituted a partnership or joint venture. Although Ms. Coudrain's expert valued the Louis Lanza Agency as a sole proprietorship, it is not a sole proprietorship, as Mr. Lanza's rights under the Agency Agreement are not commensurate with those of a sole proprietor. Instead, Ms. Coudrain argues that Mr. Lanza is an independent contractor for State Farm and that she is entitled to the stream of income produced. Indeed, the State Farm website clearly states that its agents are independent contractor agents, which it defines as self-employed, eligible for benefit coverage at the expense of the agent, and are paid commissions and service compensation from the products and services sold. [6] While Mr. Lanza may be an independent contractor, based on the factors discussed above, his rights as an independent contractor do not constitute property for community property purposes. [7] Thus, we find that the lower courts were not manifestly erroneous in holding that the Agency is not community property subject to partition. In fact, to partition this agency as community property and thereby give Ms. Coudrain ownership rights in this agency would give Ms. Coudrain more rights in the Agency than Mr. Lanza can ever have. Ms. Coudrain's expert valued this business at $2,335,389.00 as of the trial date under a capitalization of earnings approach and at $2,795,063.00 using a discounted future earnings approach based on the Agency's stream of income. Ms. Coudrain seeks a judgment partitioning this asset, which would in effect require Mr. Lanza to pay her at least $1,000,000, representing half the value of the Agency. However, the inequity in this is clear, because if the Agency were permitted to be valued in a theoretical fashion and then partitioned, Ms. Coudrain would be paid in advance for an asset which does not belong to Mr. Lanza, and which cannot be realized by a sale or another method of liquidating value.