Court Opinion

ID: 3188814
Source: CourtListenerOpinion
Date Created: 2016-03-24 22:04:39.268256+00
Date Added: 2024-06-11T07:39:04.691328
License: Public Domain

RENDERED: FEBRUARY 18, 2016
                                                          TO BE PUBLISHED

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                               2014-SC-000751-DG

LINDA DAVIS                                                             APPELLANT

                    ON REVIEW FROM COURT OF APPEALS
V.                     CASE NO. 2012-CA-002084-MR
                  GREENUP CIRCUIT COURT NO. 11-CI-00749

KAREN DAVIS and                                                         APPELLEES
ESTATE OF MATTHEW DAVIS

             OPINION OF THE COURT BY JUSTICE CUNNINGHAM

                         REVERSING AND REMANDING

      Appellant, Linda Davis ("Linda") married Matthew Davis ("Matthew"), in

1981. On May 23, 2003, Linda and Matthew executed a property settlement

agreement (the "Agreement"). Therein, the parties expressed their desire that

the Agreement "be incorporated into and made a part of any final decree which

may be entered herein . . . ." In addition to many other provisions dividing

property, the Agreement specifically provided that "[Matthew] agrees to

maintain his policy of life insurance with Monumental Life Insurance Company

in the total amount of $100,000.00 and will keep [Linda] as the beneficiary."

      On May 27, 2003, the Wayne Circuit Court entered a final decree

dissolving their marriage. Although the decree of dissolution acknowledged

that the parties had settled their property claims, it failed to incorporate the

Agreement. This omission went unnoticed until after Matthew died in July
 2011. Six weeks prior to his death, Matthew changed the beneficiary on his

Monumental Policy, which was in force since 1997, to his then-wife of two

years, the Appellee, Karen Davis ("Karen").

           When Linda learned of Matthew's death, she filed a proof of claim against

his estate premised upon a breach of the Agreement. Karen, as executrix of

Matthew's estate, denied Linda's claim, and subsequently filed this action in

Greenup Circuit Court against Monumental Life Insurance Company for the

policy proceeds. Linda intervened in this action as a third party plaintiff to file

a competing claim to those life insurance proceeds and to add Matthew's estate

as a third party defendant.

       The Greenup Circuit Court concluded that absent compliance with KRS

403.180, a separation agreement is rendered unenforceable. The Court of

Appeals agreed and held that KRS 403.180(4) essentially ( voided the Agreement

because marital dissolution is controlled by statute. The court specifically

opined that "KRS 403.180 . . . is the only source of Linda's right to make a

separation agreement with Matthew." 1 Having reviewed the record and the law,

we reverse the Court of Appeals and remand this case to the trial court.

                                  Preliminary Issues

       Appellees raise several procedural matters that must be addressed before

reaching the merits of this case. Appellees maintain that Linda's notice of

       1      A separate Court of Appeals panel also affirmed the Wayne Family
Court's denial of Linda's motion to revive the divorce action and her motion for entry of
a decree of dissolution nunc pro tunc. That determination is now binding. See Davis
v. Davis, No. 2012-CA-001243-MR, 2013 WL 2450204 (Ky. App. June 7, 2013), review
denied, (April 9, 2014).

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appeal was deficient and that the appeal should either be dismissed or limited

to certain issues. Appellees raised these same or similar claims before the

Court of Appeals in a motion to dismiss. Davis v. Davis, No. 2012-CA-002084-

MR, (Ky. App. November 26, 2014). The Court of Appeals denied Appellees'

motion and determined that Linda's notice of appeal related forward to the

order that made the litigation final.    Id. citing Johnson v. Smith, 885 S.W.2d
944, 949 (Ky. 1994). See also CR 73.03. The court also concluded that

Appellees failed to demonstrate any substantial harm or prejudice that resulted

from the alleged errors. The court denied Appellees' motion and proceeded to

the merits of the case. We agree with that decision and the reasons in support

thereof. The same resolution is warranted here.

      Appellees further contend that dismissal is required because Linda failed

to timely file her brief in the Court of Appeals. However, Appellees have not

indicated that they raised this alleged error in the Court of Appeals nor have

they demonstrated any substantial harm or prejudice that resulted therefrom.

Therefore, we will proceed to the merits.

                                        Analysis

      KRS 403.180 governs the enforceability of written separation

agreements. Property disposition provisions contained in such agreements are

binding upon the court unless they are unconscionable. KRS 403.180(1) and

(2). Section 4 of that statute states in pertinent part as follows:

        (4) If the court finds that the separation agreement is not
        unconscionable as to support, maintenance, and property:

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             (a) Unless the separation agreement provides to the contrary,
             its terms shall be set forth verbatim or incorporated by
             reference in the decree of dissolution or legal separation and
             the parties shall be ordered to perform them; or

             (b) If the separation agreement provides that its terms shall
             not be set forth in the decree, the decree shall identify the
             separation agreement and state that the court has found the
             terms not unconscionable.

It is undisputed that the requirements of Section 4 were not satisfied here.

Therefore, the Agreement cannot be enforced as a judgment by the family

court. The issue is whether Linda may nevertheless maintain a common law

contract claim in order to enforce the Agreement; or, whether failure to

incorporate or reference the Agreement in the decree of dissolution rendered

the Agreement void.

Contract Action

      Kentucky has a long history of enforcing contracts between spouses. In

Smith v. Hughes for example, our predecessor Court held that wives possessed

"the right to contract with their husbands, [and] to sue them on such contracts

. . . ." 167 S.W.2d 847, 851 (Ky. 1942). Similarly, the Court held in Campbell

v. Campbell that a husband and wife "could enter into a valid postnuptial

contract wherein each relinquished his or her respective interest in the

property of the other, if such an agreement was fair and equitable, and

supported by an adequate consideration." 377 S.W.2d 93, 94 (Ky. 1964).

Appellees have failed to persuade this Court that contracts disposing of

property, which are executed in contemplation of dissolution of marriage,
constitute an exception to this general rule. The enactment of KRS 403.180 in

1972 does not alter this conclusion. In fact, it fortifies our decision.

      KRS 403.180 discusses whether a settlement agreement is enforceable as

a judgment. However, KRS 403.180 does not automatically void settlement

agreements which are improperly referenced or are not incorporated into the

final decree of dissolution; nor does such a failure to comply with KRS 403.180

render a prior or contemporaneous property settlement agreement

unenforceable. Cf. Annechino v. Joire, 946 A.2d 121, 122 (Pa. Super Ct. 2008)

(holding that the trial court had authority to enforce a marital property

settlement agreement that had not been incorporated into the parties' final

divorce decree). Although the Annechino court had the benefit of a

Pennsylvania statue that expressly permitted enforcement of an

unincorporated agreement, the absence of such a statutory provision permitting

enforcement by the Kentucky Family Court does not imply a provision

forbidding enforcement of the agreement by a Kentucky court of general

jurisdiction. See Carter v. Carter, 382 S.W.2d 400, 401 (Ky. 1964) ("divorce

proceedings are equitable actions in this state [] and equity is broader than the

statute"), superseded on other grounds in Neidlinger v. Neidlinger, 52 S.W.3d
513 (Ky. 2001).

      Furthermore, we acknowledge that KRS 403.180 was designed to protect

parties "from their own irresponsible agreements[,]" primarily those agreements

that are unconscionable. Shraberg v. Shraberg, 939 S.W.2d 330, 333 (Ky.

1997). However, this does not foreclose a separate contract action to enforce a

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valid settlement agreement that was not incorporated or referenced in the final

decree of dissolution. This logic is echoed in a leading Kentucky treatise:

      Although separation agreements not involving legal separation are
      enforceable as contracts, they are not enforceable as judgments
      because they do not involve a court decree. Separation agreements
      enforceable only as contracts are not entitled to full faith and
      credit in sister states. Further, contempt remedies are not
      available because only a judgment may be enforced by contempt.

      15 Ky. Prac. Domestic Relations L. § 9:6 (citations omitted). See
      also 16 Ky. Prac. Domestic Relations L. § 17:3 ("a circuit court may
      enter a final decree dissolving the parties' marriage before resolving
      property or support questions.") (citation omitted).

      Therefore, KRS 403.180 does not automatically foreclose post-decree

dispositions or independent enforcement of property agreements not

incorporated or referenced in the decree. Several other jurisdictions have also

determined that separation agreements may be enforced as independent

contract actions.

      For example, in Dion v. Dion, a federal court applying Pennsylvania law

observed that "a separation agreement for support which has not been merged

into a divorce decree or support order creates a contractual obligation to

provide support which is independent of any support obligation imposed under

principles of domestic relations law." 652 F. Supp. 1151, 1154 (E.D. Pa. 1987)

(citation omitted). In Bradley v. Bradley, the court observed that "contractual

maintenance arises where the maintenance provisions are agreed to by the

parties in the separation agreement and are agreed not to be incorporated into

the terms of the court's decree." 880 S.W.2d 376, 378 (Mo. App. 1994) (citation

omitted). As such, the court concluded that "[c]ontractual maintenance is

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enforceable by a separate action for breach of contract and it is not modifiable

by the court." Id. See also Cramer v. Hirsch, 470 N.E.2d 803, 804 (Mass. App.

Ct. 1984); and Mendelson v. Mendelson, 173 N.E. 615, 616 (Ohio 1930).

      Having considered the relevant authority, we hold that a settlement

agreement involving property division that was not incorporated or referenced

in the final decree of dissolution may be enforced through an independent

contract action. Our holding does not apply to agreements executed prior to or

contemporaneously with an agreement that has been duly incorporated or

referenced in a dissolution decree. In such cases, the agreement that is

properly incorporated or referenced in the decree controls. Such language in

effect becomes part of the final judgment.

      Nor does our holding apply to \settlement agreements that are made in

anticipation of dissolution of marriage but, where the divorce is never

consummated. As previously stated, the agreement at issue in this case

included the expressed intent of the parties that the Agreement "be

incorporated into and made a part of any final decree which may be entered

herein . . . ." Where it is evident that divorce is anticipated by the agreement,

enforcement of the agreement becomes conditioned upon the divorce being

completed in the action that is pending. 17A C.J.S. Contracts § 446. Many

divorce actions are filed along with separation agreements and the parties

either reconcile or dismiss the action without a final judgment of divorce. A

party or parties may also die before the divorce is obtained.   See Rhodes v.

Pederson, 229 S.W.3d 62 (Ky. App. 2007). Thus, a separation agreement in

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those instances would be unenforceable due to the failure to fulfill a condition

upon which the agreement was premised--i.e. finalizing the divorce.       See 17A

C.J.S. Contracts § 451.

      In the present case, however, the divorce was finalized by the dissolution

decree. Accordingly, Linda may bring her contract claim and the respective

defendants may raise all applicable defenses, including unconscionability. If

the trial court determines that the Agreement is valid, enforceable, and that its

terms have been breached, Linda may recover damages. To clarify, the

distinction here is that the circuit court must consider all elements of a

contract claim and all applicable defenses, whereas the family court would only

consider the conscionability of the agreement had it been duly incorporated

into the decree.

Equitable Claims

      Linda also contends that the Court of Appeals erred in affirming the trial

court's denial of her claims for unjust enrichment and her request for the

imposition for a constructive trust over the insurance policy proceeds. Having

determined that Linda is entitled to pursue a claim under common law

contract principles, it logically follows that she also be entitled to pursue all

equitable claims and remedies available at common law. This includes a claim

for unjust enrichment and the imposition of a constructive trust.      See Sims v.

Sims, 348 S.E.2d 835, 836 (S.C. 1986) (permitting independent action by

former husband seeking a constructive trust arising from the alleged breach of

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a property agreement that was not incorporated in the divorce decree).     See

also, Rose v. Ackerson, 374 S.W.3d 339 (Ky. App. 2012).

      We also note that "despite cases to the contrary . . . Kentucky courts

have required the party seeking the imposition of a trust to establish a

`confidential relationship' with the party upon whom the trust is to be

imposed."' Keeney v. Keeney, 223 S.W.3d 843, 849 (Ky. App. 2007) (citing

Panke v. Panke, 252 S.W.2d 909, 911 (Ky. 1952)). "Where it is deemed

necessary, however, `[t]he existence of the relationship in any particular case is

to be determined by the facts established."' Id. at 849-50 (citing Henkin, Inc. v.

Berea Bank & Trust Co., 566 S.W.2d 420, 423 (Ky. App. 1978)). With these

considerations in mind, Linda may pursue her equitable claims upon remand.

      Furthermore, the fact that Karen has not been named as a defendant in

the Greenup County action is of no consequence. Karen is the plaintiff in that

case and Linda is an intervening and third party plaintiff. Karen has filed an

Answer in response to Linda's Intervening Complaint. Also, while not expressly

alleging unjust enrichment or requesting the imposition of a constructive trust,

Linda's Complaint alleges fraud and repeatedly requests that the transfer of

any life insurance proceeds be set aside, along with any change of beneficiary.

In any event, "[a] party's failure to assert the existence of unjust enrichment

does not serve to make it nonexistent." Rose, 374 S.W.3d at 343. "As long as

the trial court determines that the elements are present, it is not precluded

from making the legal conclusion that unjust enrichment exists."     Id.

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                                 Conclusion

      For the forgoing reasons, we reverse the Court of Appeals and remand

this case to the trial court for further proceedings consistent with this opinion.

      All sitting. All concur.

COUNSEL FOR APPELLANT:

Donald Bruce Orwin

COUNSEL FOR APPELLEES:

John Fredrick Vincent

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