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Green v. Green

Court of Appeals of North Carolina

October 3, 2017


          Heard in the Court of Appeals 15 May 2017.

         Appeal by Defendant from judgment and order entered 22 February 2016 and 2 March 2016 by Judge Lillian B. Jordan in District Court, Forsyth County No. 13 CVD 4122.

          Bell, Davis & Pitt P.A., by Robin J. Stinson, for Plaintiff-Appellee.

          Wyrick Robbins Yates & Ponton LLP, by Tobias S. Hampson, for Defendant-Appellant.

          McGEE, Chief Judge.

         Stanley Boyd Green ("Defendant") appeals from an equitable distribution order and judgment that, inter alia, classifies compensation he received as a part owner of a law firm as "deferred compensation, " and thus divisible property pursuant to N.C. Gen. Stat. § 50-20. Defendant also appeals from an alimony order and judgment requiring him to pay $6, 000.00 per month in alimony to his former wife, Jennifer Cleland Green ("Plaintiff"). We reverse the alimony order and portions of the equitable distribution order, and remand for further proceedings.

          I. Background

         Plaintiff and Defendant married on 22 October 1994 and had four children together. Plaintiff and Defendant separated on 25 June 2013. Plaintiff graduated from law school in 1992 and worked as a law clerk at the North Carolina Court of Appeals for two to three years. Defendant graduated from law school after the parties were married, clerked for one year at the North Carolina Court of Appeals, and was then hired by the Womble Carlyle Sandridge & Rice law firm in Winston-Salem in 1999. Prior to the parties' separation, Plaintiff had not worked outside the home since the birth of their first child in 1995, except for a few weeks writing subrogation letters early in the couple's marriage. The parties agreed in 2000 that Plaintiff's law license would become inactive, and Plaintiff has spent the last twenty years caring for their children. After the parties separated in 2013, Plaintiff was employed part-time and earned a net income of $1, 505.98 per month.

         Defendant joined the firm of Strauch, Fitzgerald and Green ("the firm") as a founding partner in 2009 where Defendant was initially a twenty-five percent shareholder. By the date of separation, Defendant was a 26.32 percent shareholder and, after the date of separation, he became a forty percent shareholder when one of the partners left the firm.[1] The firm is a Subchapter C corporation and, as such, shareholders are paid only when there are profits from which to pay them.

         In 2009, Jack Strauch ("Strauch") brought to the firm a contingency fee case, that arose out of a contract dispute from the 2010 Vancouver Winter Olympics. The firm represented Cruise Connections, a U.S. corporation based in Winston-Salem, against the Royal Canadian Mounted Police (the "Cruise case"). Though the Cruise case had already been dismissed by the federal district court at the time the case was brought to the firm, Defendant assisted Strauch with developing arguments on appeal, and the firm obtained a reversal in the Cruise case in April 2010. See generally Cruise Connections Charter Mgmt. 1, LP v. Attorney General of Canada, 600 F.3d 661 (D.C. Cir. 2010).

         After Plaintiff and Defendant separated, the firm obtained summary judgment on liability in the Cruise case. Defendant, Strauch, and others in the firm worked with experts, drafted pre-trial memoranda, developed motions in limine, and participated in the damages trial. The firm obtained a $19.1 million verdict for its client at trial. While the matter was on cross-appeal, the Cruise case settled in mediation for $16.9 million in December 2014. The settlement yielded the firm a fee of $5, 492, 500.00.

         Although the Cruise case was a contingency case, the firm kept detailed billing records that showed members of the firm had worked 6, 608 total billable hours on the case. The hours logged prior to the separation of Plaintiff and Defendant totaled 5, 159, being seventy-eight percent of the total billed hours. On 13 March 2015, under the firm's compensation structure in existence in 2015, Defendant received a payment of $1, 909, 277.00 from the Cruise case. After accounting for taxes, Defendant received $992, 844.00 of the Cruise case fee.

         Plaintiff filed a complaint against Defendant for child custody, child support, divorce from bed and board and injunctive relief on 14 June 2013. Plaintiff filed a second complaint on 2 July 2013 for equitable distribution, alimony, post-separation support, and attorney's fees. Defendant filed an answer and counterclaim in both actions on 21 August 2013. The two actions were consolidated, and the issues of equitable distribution and alimony were tried in January 2016. The trial court entered an equitable distribution judgment and order (the "equitable distribution order") on 22 February 2016, and entered an alimony judgment and order (the "alimony order") on 2 March 2016.

         In determining the value of the firm on the date of separation and the current value, the trial court relied on the testimony of Defendant's expert, Betsy Fonvielle ("Fonvielle"), who testified that the most appropriate valuation method was the "capitalized returns" method. Fonvielle testified that the capitalized returns method over-emphasized the impact of the Cruise case, so Fonvielle determined Defendant's interest in the current value of the firm by averaging the capitalized return figure with the "direct market data calculation, " and determined the current value of the firm to be $409, 000.00 (the value the trial court found). The trial court also found that Defendant's interest in the firm on the date of separation was $314, 476.00. It further determined that the $94, 524.00 difference between the current value of Defendant's interest and the value of Defendant's interest on the date of separation was a "passive" increase and therefore divisible property subject to equitable distribution. The trial court also found as fact that $636, 575.00 of the income Defendant received from the Cruise case was "divisible property" and constituted "deferred compensation."[2] The trial court ordered half of that amount ($318, 287.50) to be paid to Plaintiff.

         The total marital estate was valued at $1, 464, 407.38. Pursuant to the equitable distribution order, Plaintiff was ultimately awarded fifty-three percent of the total marital estate, being $776, 135.91, which included the payment from the Cruise case compensation and a $154, 076.57 distributive award. The marital home, with a net value of $41, 867.26 after accounting for appreciation in the home and subtracting the mortgage still due on the home, was also distributed to Plaintiff as sole owner. The mortgage balance on the marital residence was $368, 448.74 and was distributed to Plaintiff. Pursuant to the alimony order, Defendant was ordered to pay permanent alimony of $6, 000.00 per month. Defendant appeals.

         II. Analysis

         Defendant argues the trial court erred by: (1) classifying the Cruise case compensation as deferred compensation, a type of marital property pursuant to N.C. G.S. § 50-20(b)(1); (2) classifying the Cruise case compensation as divisible property pursuant to N.C. G.S. § 50-20(b)(4)(b); (3) incorrectly valuing Defendant's interest in the firm and distributing the post-separation increase in the value of the firm; (4) concluding as a matter of law that the entire increase in value of the firm from the date of separation to the date of distribution was a passive increase, and thus divisible property; (5) failing to order Plaintiff to remove Defendant from the note and deed of trust on the marital home; (6) ordering an unequal distribution funded by a distributive award where there was no evidence Defendant had the liquid funds and ability to pay the distributive award or that the presumption of an in-kind distribution was rebutted; and (7) determining the amount of alimony to be awarded to Plaintiff, and Defendant's ability to pay that amount.

         A. Classification of the Cruise Case Compensation

         Defendant argues the trial court erred by classifying the income he received from the firm as a result of the Cruise case settlement as both divisible property and deferred compensation.

It is well settled in this jurisdiction that when the trial court sits without a jury, the standard of review on appeal is whether there was competent evidence to support the trial court's findings of fact and whether its conclusions of law were proper in light of such facts. While findings of fact by the trial court in a non-jury case are conclusive on appeal if there is evidence to support those findings, conclusions of law are reviewable de novo.

Lee v. Lee, 167 N.C.App. 250, 253, 605 S.E.2d 222, 224 (2004) (internal quotations omitted). It is also well settled that "[q]uestions of statutory interpretation are ultimately questions of law for the courts and are reviewed de novo." In re Summons of Ernst & Young, 363 N.C. 612, 616, 684 S.E.2d 151, 154 (2009) (citation omitted).

         Pursuant to N.C. Gen. Stat. § 50-20, the trial court in an equitable distribution case "shall . . . provide for an equitable distribution of the marital property and divisible property between the parties[.]" N.C. Gen. Stat. § 50-20(a) (2015). As relevant here, marital property includes "all vested and nonvested pension, retirement, and other deferred compensation rights[.]" N.C. G.S. § 50-20(b)(1) (2015). Divisible property, as relevant to the present case, is defined as:

all real and personal property [including] [a]ll property, property rights, or any portion thereof received after the date of separation but before the date of distribution that was acquired as a result of the efforts of either spouse during the marriage and before the date of separation, including, but not limited to, commissions, bonuses, and contractual rights.

N.C. Gen. Stat. § 50-20(b)(4)(b) (2015).

         In the equitable distribution order in the present case, the trial court found as fact that "a portion of the Cruise Case fee received by [Defendant] after the date of separation is divisible property separate from the value of [t]he [f]irm and is considered by the [c]ourt as deferred compensation for work performed during the marriage." (emphasis added). We initially note that the trial court appears to have found the Cruise case compensation to be both divisible property, pursuant to N.C. G.S. § 50-20(b)(4)(b), and deferred compensation, a type of marital property pursuant to N.C. G.S. § 50-20(b)(1). The "classification of property in an equitable distribution proceeding requires the application of legal principles, " and we therefore review de novo the classification of property as marital, divisible, or separate. Romulus v. Romulus, 215 N.C.App. 495, 500, 715 S.E.2d 312 (2011) (citation omitted). The Cruise case compensation cannot be both marital and divisible property and, as such, we inquire separately into whether the income is appropriately classified as deferred compensation or divisible property.

         1. Deferred Compensation

         The present case represents the first occasion North Carolina Courts have had to consider whether a contingent fee, collected after the date of separation but where the contract under which the contingent fee was earned was entered into during a marriage, qualifies as "deferred compensation" for the purposes of equitable distribution under N.C. G.S. § 50-20(b)(1). We first consider the text of the statute, which provides that "[m]arital property includes all vested and nonvested pension, retirement, and other deferred compensation rights." N.C. G.S. § 50-20(b)(1). The statute does not define the term "deferred compensation, " and we therefore must employ methods of statutory construction in order to discern the intent of the General Assembly in drafting the statute. See Stevenson v. Durham, 281 N.C. 300, 303, 188 S.E.2d 281, 283 (1972) ("The primary rule of statutory construction is that the intent of the legislature controls the interpretation of a statute.").

         One cannon of statutory construction employed by our Courts is ejusdem generis, which states that "where general words follow a designation of particular subjects or things, the meaning of the general words will ordinarily be presumed to be, and construed as, restricted by the particular designations and as including only things of the same kind, character and nature as those specifically enumerated." State v. Fenner, 263 N.C. 694, 697-98, 140 S.E.2d 349, 352 (1965); see also Knight v. Town of Knightdale, 164 N.C.App. 766, 769, 596 S.E.2d 881, 884 (2004). Applying the cannon to the present case, we discern that the General Assembly meant for "deferred compensation, " a general phrase, to include only items "of the same kind" as those words which come before it in N.C. G.S. § 50-20(b)(1). We do not believe a spouse's share of a contingent fee earned by virtue of the spouse's ownership interest in a law firm is "of the same type" as vested and nonvested pensions and retirement accounts, which suggests the General Assembly did not mean to include contingency fees to be included in the term "deferred compensation" in N.C. G.S. § 50-20(b)(1).

         Also considering dictionary definitions leads to the same result. A contingent fee is defined as "[a] fee charged for a lawyer's services only if the lawsuit is successful or is favorably settled out of court." Black's Law Dictionary 338 (8th ed. 2004) (emphasis added). Deferred compensation, on the other hand, "generally refers to money which, by prior arrangement, is paid to the employee in tax years subsequent to that in which it is earned." Michael J. Canan, Qualified Retirement and Other Employee Benefit Plans § 1.6 (West 1994) (emphasis added); see also Black's Law Dictionary 421 (6th ed. 1990) (defining "deferred compensation" as "compensation that will be taxed when received and not when earned"). Defendant received the Cruise case fee only after the lawsuit was favorably settled out of court, and Defendant received the income in the year in which it was earned and after the date of the parties' separation.

         "[A]s a general matter, retained earnings of a corporation are not marital property until distributed to the shareholders." Allen v. Allen, 168 N.C.App. 368, 375, 607 S.E.2d 331, 336 (2005). "[F]unds received after the separation may appropriately be considered as marital property when the right to receive those funds was acquired during the marriage and before the separation[.]" Hill v. Hill, ___N.C.App. __, __, 781 S.E.2d 29, 40 (2015) (quotation omitted). Because the Cruise case had not been settled at the time of the parties' separation, Defendant had no right to any income from the Cruise case at that time.

         Even if the Cruise case compensation was properly classified as deferred compensation, under N.C. G.S. ยง 50-20.1(d), an award of deferred compensation is based on the accrued benefit calculated as of the date of separation. In the present case, Defendant had no accrued benefit at the date of the parties' separation - Defendant was not entitled to any payment from his or the firm's work on ...

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