Opinion ID: 1842171
Heading Depth: 1
Heading Rank: 4

Heading: Are any portion of the renewal commissions or service compensation received by Mr. Lanza after termination of the community on insurance policies written during the marriage community property?

Text: Ms. Coudrain argues that, if the Agency itself is not community property subject to partition, she is at least entitled to a portion of the income earned by Mr. Lanza after termination of the community under this Court's holding in Ross v. Ross, 02-2984 (La.10/21/03), 857 So.2d 384. She argues that Ross stands for the proposition that the policies are things capable of producing fruits, i.e., the renewal commissions, and she and Mr. Lanza are co-owners of these fruits under La. C.C. arts. 2369.1 [8] and 2369.2 [9] . Pursuant to these articles, Ms. Coudrain claims that the amount of labor expended by Mr. Lanza before and after termination of the community is irrelevant as they share equally these fruits. [10] Mr. Lanza argues that the service compensation he received after termination of the community was based solely on post-community effort, skill and industry and is thus his separate property. Ms. Coudrain counters that even if the division of labor is germane to this issue, Mr. Lanza's argument that he expended no community labor to generate these renewal commissions is erroneous. In Ross, this Court recently addressed the rights of an ex-spouse of a State Farm insurance agent to renewal commissions or service compensation; however, in that case, the issue involved renewal commissions paid during the marriage on insurance policies sold prior to the marriage. [11] Ross v. Ross, supra . The Court framed the issue before it as whether the renewal commissions received by Mr. Ross during the community property regime on insurance policies written before the existence of the community are the result of labor, skill or industry, and are, thus, community property or whether, on the other hand, the renewal commissions are the `civil fruit' of some asset acquired by Mr. Ross prior to the existence of the community, such that they are subject to his declaration of paraphernality. Id. at 387. Mr. Ross's ex-spouse argued that neither the insurance policies nor the State Farm Agency contract constituted  things or assets in which Mr. Ross had an ownership interest and from which fruits may be derived. After a lengthy discussion, Ross held that the insurance policies were juridical acts from which civil fruits (the renewal commissions) can be derived. [12] Having found that the insurance policies are `things' from which civil fruits may be derived,  the Court set out to determine whether the renewal commissions were in fact `civil fruits' of Mr. Ross' separate property, and not the result of Mr. Ross' effort, skill, or industry during the existence of the community property regime, i.e., whether they were fruits or earnings. Id. at 392 (emphasis added). The Court noted that if the renewal commissions are the result of Mr. Ross' effort, skill or industry during the existence of the community property regime, the renewal commissions, or at least a portion thereof, are community property . . . in keeping with the basic notion that spouses should share equally `the produce of reciprocal labor and industry of both husband and wife.' Id. In determining whether the commissions were fruits or earnings, the Court looked to several appellate cases that have considered whether renewal commissions paid after termination of the community on policies issued during the community were community property. In these cases, the First, Second, and Fourth Circuits have held that this revenue resulted from labor during and after the community, and was to be divided proportionately. See Michel v. Michel, 484 So.2d 829 (La.App. 1 Cir.1986) (affirming the trial court's one-half to one-half division of the revenues as an approximation of the proportionate division and holding that [w]hile it is true that the spade work had been done when the original sale had been made, some service work had to be performed an in addition there was no certainty that the policies would be renewed); Futch v. Futch, 26-149 (La.App. 2 Cir. 9/23/94), 643 So.2d 364 (holding that the renewal commissions are community property subject to partition and remanding case to determine the extent of work performed after termination on keeping the policies in force, placing the burden of proof on the husband to establish his entitlement to more than one-half of the renewal commissions); Boyle v. Boyle, 459 So.2d 735 (La.App. 4 Cir.1984), writ denied, 462 So.2d 651 (La.1985) (awarding wife one-half of the renewal commissions on policies written before termination of the community). In the only case to hold otherwise, the Third Circuit in Williams v. Williams, 590 So.2d 649 (La.App. 3 Cir.1991), held that renewal commissions, or service commission, paid on State Farm policies issued during the marriage were not community property because even if the renewal premiums were attributed to work during and after the community, the value to the community was so speculative that it had no value at all. [13] In Ross, we expressed our agreement with commentators who have opined that the [e]quitable considerations as well as basic doctrinal principles support the Michel-Boyle-Futch approach, even if the division is approximate. 857 So.2d at 395 (citing Matrimonial Regimes, Louisiana Civil Law Treatise, § 3.4 at p. 58 (1997)). After holding that [b]ecause the renewal commissions were received during the existence of the community, the burden was upon Mr. Ross to prove that they were not community property, the Court found that the renewal commissions received by Mr. Ross during the existence of the community property regime were the result of Mr. Ross' effort, skill and industry exerted during the community regime. Id. Accordingly, the Court held that Ms. Starks is entitled to share in the business income generated by Mr. Ross' work, industry and effort during the marriage. Id. at 397-398. In this case, the court of appeal interpreted Ross as holding that renewal commissions were civil fruits, and that, therefore, Ms. Lanza was entitled to a portion thereof. 874 So.2d at 892. Specifically, the court of appeal held that the Ross Court determined that the renewal of a pre-existing State Farm insurance policy constitutes a juridical act and, thus, a thing under La. Civ.Code art. 551 from which civil fruits may be derived and that `if the renewal commissions are the result of the State Farm agent's effort, skill, or industry during the existence of the community property regime, the renewal commissions, or at least a portion thereof, are community property.' Id. Further, after rejecting Mr. Lanza's argument that he received only service compensation, and thus salary from State Farm, and not renewal commissions, because Ross reject[ed] the contention that renewal commissions could be deemed salary, the court held that to the extent that the standard State Farm contract may be interpreted to circumvent basic concepts of Louisiana property law and the rights of spouses with regard to fruits under the Louisiana community property regime, it is against public policy and, therefore, unenforceable. Id. at 892-93. Upon review, we affirm the judgment of the court of appeal, but for different reasons. In Ross, we did not hold that the insurance policies produced civil fruits, or that the renewal commissions were fruits. The holding in Ross left open the argument that these commissions are civil fruits, in whole or in part, of the contractual right acquired by the spouse-agent to the payment of these commission in accordance with the State Farm Agent's Agreement. See Spaht and Richard D. Moreno, 16 Louisiana Civil Law Treatise, § 3.8, p. 22 (2004 Pocket Part). Further, while a determination of whether the commissions were fruits may have been relevant in Ross regarding the husband's declaration of paraphernality, it is not the determinative issue here, and it was not the determinative issue there, as Ross ultimately held that the renewal commissions were the product, in part, of the effort, skill, and industry of the husband exerted during the marriage, and were therefore community property. See Ross, supra, (Knoll, concurring and stating that the majority took an erroneous, and unnecessary circuitous, route to reach its result) see also Spaht and Moreno, supra at § 3.3, p. 13-14 (2004 Pocket Part) (characterizing the Court's discussion of whether the insurance policies are juridical acts from which civil fruits can be derived as dicta given the Court's ultimate holding that the renewal commissions were in fact the product, in part, of the labor, effort and skill or the husband exerted during the marriage). We ultimately find that the legal issue in this case is a straightforward one, although the resulting factual issues resulting therefrom may not be. The Civil Code defines community property as follows: The community property comprises: property acquired during the existence of the legal regime through the effort, skill, or industry of either spouse; . . . and all other property not classified by law as separate. La. C.C. art. 2338. As explained in Ross: Wages are the premier community asset. It is wages paid in return for work done during the existence of the community that are included, regardless of when the payment is actually made. The property acquired, in the language of Louisiana Civil Code Article 2338, is a right to payment at some point for the work done. If payment is made during the community for work done before its commencement, the money is separate. If the check is cut after termination, but is for work done during the community, the funds are community. Ross, supra at 390 (citing Spaht and Hargrave, supra, § 3.3, p. 48). As stated above, in Ross, we held that renewal commissions paid pursuant to State Farm Agency contracts are community property, in whole or in part, depending on the extent they were earned as a result of the agent-spouse's effort, skill, or industry during the existence of the community property regime. As Justice Knoll explained in her concurrence in Ross, the issue before the court in Ross was the same issue that was before the courts in Michel, Williams, and Futch, [and consequently, this case], i.e., whether renewal commissions are classified as community or separate when the initial policies were sold during one regime and the renewal commissions were earned in another. Ross, supra at 399-400 (Knoll, J., concurring) The only difference is that in Michel, Williams, and Futch, [and this case], the policies were sold during the community and the renewal commissions were paid after its termination whereas, in [ Ross ], the situation is the complete opposite. Ross, supra at 400 (Knoll, J., concurring). Indeed, we agree that the same principles that determined the outcome in Ross are determinative here. Pursuant to Article 2338, community property comprises property acquired during the existence of the legal regime through the effort, skill, or industry of either spouse, and this includes the right to the payment of any compensation for work done during the community. Therefore, to the extent that Mr. Lanza has received compensation after the community regime for work performed during the community, this compensation is community property. Regarding the applicable burden of proof, in Ross, this Court held that, because the renewal commissions were received during the existence of the community, the burden of proof was on the husband to prove that the commissions were not community. Ross, supra at 396. This is because property which comes into the possession of a spouse during the community regime is presumed to be community, regardless of the source. La. C.C. art. 2340; Talbot v. Talbot, 03-0814 (La.12/12/03), 864 So.2d 590, 597. However, in this case, there is no presumption of community as to these renewal commissions because the income at issue did not come into Mr. Lanza's possession during the community regime. La. C.C. art. 2340. While Ms. Coudrain's argument that a portion of this income was for work done during the existence of the community and thus constitutes property acquired during the community under La. C.C. art. 2338, the presumption of community found in La. C.C. art. 2340 applies only to [t]hings in the possession of a spouse during the existence of community of acquets and gains. . . Therefore, Ms. Coundrain will have the burden of proving, by a preponderance of the evidence, which portion Mr. Lanza's post-community income resulted from policies initially issued during the community, and of those policies, how much of the resulting service compensation was due to Mr. Lanza's effort, skill, or industry exerted during the community. [14] We recognize that the trial court issued its judgment, after a trial on the merits, without the guidance of Ross, which was decided shortly thereafter. Therefore, in the interest of justice, on remand, the trial judge should receive and consider additional evidence relevant to whether any portion of Mr. Lanza's post-community income resulted from his effort, skill, and industry during the community.