BLUEWATER BACKSPLASH

April 3, 2012 § 3 Comments

The MSSC decision in Bluewater Logistics v. Williford, 55 So.3d 148 (Miss. 2011), is notable for several reasons. First, it’s of value to lawyers who litigate over LLC’s and contracts as a guide to the parameters of litigation in that field. Second, it spelled the demise of the “heightened scrutiny” and “lessened deference” rules formerly applied when judges adopt verbatim one side’s proposed findings of fact and conclusions of law; a post in which I touched on that point is here.

To me, though, the most potentially far-reaching impact of Bluewater is its treatment of the pleadings and the scope of relief granted by the trial judge. The COA had reversed, ruling that the chancellor had impermissibly gone beyond the scope of the pleadings. The COA decision rested on three 19th-century cases.

The MSSC granted cert and the Bluewater appellants argued to the high court that the COA was correct because Williford’s complaint had sought only injunctive relief in the form of reinstatement as a member of the LLC, and that, as a result, the chancellor was in error in awarding him equitable relief in the form of a judgment for the value of his interest in the LLC. Here’s what Justice Dickinson, writing for the majority, said, beginning at page 157:

¶ 35. Mississippi has been a “notice pleading” state since January 1, 1982, when we adopted the Mississippi Rules of Civil Procedure. [citation omitted] Under Rule 8, a complaint need only contain “a short and plain statement of the claim showing that the pleader is entitled to relief,” and “a demand for judgment.” [citation omitted] “No technical forms of pleading or motions are required.” [citation omitted] Moreover, “[a]ll pleadings shall be so construed as to do substantial justice.” [citation omitted] Rule 54(c) states that every final judgment shall grant the relief to which the party in whose favor it is rendered is entitled by the proof and which is within the jurisdiction of the court to grant, even if the party has not demanded such relief in his pleadings …. ” [citation omitted]

¶ 36. Our decisions have reflected the shift from older forms of “code pleading” to the Rules’ “notice pleading” paradigm. In Pilgrim Rest Missionary Baptist Church v. Wallace, we stated “it is axiomatic that the relief need not be limited in kind or amount by the demand but may include relief not requested in the complaint.” [citation omitted] And in Turner [Turner v. Terry, 799 So.2d 25, 39 (Miss.2001)], we stated: “A trial judge may award a party any relief to which he is entitled, even if the party fails to make a specific demand for such.” [citation omitted]

¶ 37. In holding that the chancellor erred in granting Williford money damages, the Court of Appeals inexplicably relied on three pre–rules cases, two of which date to the 1850s. [citation omitted] We now overrule Barnes, French, and Tucker to the extent that they conflict with the requirements and provisions of the Mississippi Rules of Civil Procedure and subsequent decisions of this Court.

¶ 38. We hold that Williford’s complaint was clearly sufficient to support an award of monetary damages. The complaint is titled “Complaint for Preliminary and Permanent Injunction and Damages.” The opening paragraph stated that Williford was seeking damages. Paragraph 5 alleged the ouster was unlawful, “warranting equitable and monetary relief.” Count I of the complaint was titled “Breach of Contract” and alleged breach of contract, for which the remedy is compensatory damages. In Count III, titled “Violation of the Mississippi Limited Liability Company Act,” Williford asserted “all rights and remedies available under the applicable statute, Miss.Code Ann. § [79–29–101], et seq.” [citation omitted] Under the section titled “Damages and Relief Sought,” Williford sought (among other things) compensatory damages, an accounting of all company assets, an appraisal of the fair-market value of his share of the company, and “any other relief to which he may be entitled.”

¶ 39. Viewed as a whole, we cannot say the chancellor was in error by finding that the complaint was sufficient to put Bluewater on notice that Williford was seeking monetary relief. Accordingly, Defendants’ argument that the chancellor granted Williford relief that was beyond the scope of the pleadings is without merit.

One of those 19th-century cases reversed by the court Terry v. Jones, was referred to by me in a prior post to emphasize that pleadings are not proof.

It remains to be seen how far the courts will go in applying the pleadings aspects of Bluewater. If the decision is limited to the underlying facts, then it should not be too earthshaking because the pleadings arguably did invoke the remedies that the trial court applied. If, however, the decision is taken to mean that notice pleadings require only notice of subject matter jurisdiction, thereby opening the door to all species of relief available thereunder, then your practice of chancery law may change dramatically.

Or maybe not. It has long been the law in Mississippi that in granting equitable relief the chancellor may order all relief necessary to effect an equitable remedy, whether pled for or not. For instance, in awarding lump sum alimony the chancellor may impose an equitable lien on real propterty to secure the payment. Or, where custody is sought, the judge may order the noncustodial parent to pay child support even where it was not sought. So perhaps Bluewater is not so much a dramatic shift in the tide as it is a mere ripple on the pond.

FYI, the Bluewater holding also calls into question a prior post of mine in which I stressed that you have to ask for specific relief in your pleadings if you expect to get it.

I encourage you to read the Bluewater decision carefully to get a handle on how it can help or hurt you. You will likely come up with ways to argue it to your advantage.

ALLOCATING MARITAL DEBT

April 2, 2012 § 1 Comment

Chancellors are often called upon to adjudicate issues of marital debt between warring divorce combatants. Many times the debt is secured by an asset, such as a car, or a home, or an appliance, and the debt often follows the asset with the effect of reducing its value in equitable division.

More and more frequently, though, I am seeing cases where the court is asked to divide marital debt that did not result in the acquisition of an asset. Some examples: Credit card debt for living expenses; credit card debt for a trip to Disney World; a loan to pay off pre-marital debts; or an IRA loan that paid a spouse’s credit card.

So what exactly is the state of Mississippi law vis a vis allocation of credit card debt in a divorce? Here are some cases that I think aptly set out the law on the point:

  • “The courts of this state have consistently held that expenses incurred for the family, or due to the actions of a family member, are marital debt and should be treated as such on dissolution of the marriage.” Shoffner v. Shoffner, 909 So.2d 1245, 1251 (Miss.App. 2005). In that case, the court affirmed the trial judge’s order that Mrs Shoffner pay $6,486.04 of marital credit card debt based on extensive lists, prepared and offered into evidence by Mr. Shoffner, showing expenditures for automobile maintenance, holiday gifts for the family, gasoline, meals for the family, and so on.
  • In Turpin v. Turpin, 699 So.2d 560, 565 (Miss. 1997), the Mississippi Supreme Court upheld the chancellor’s order that each party pay one-half of the marital debt in the absence of evidence that the debt primarily benefitted one or the other.
  • In Bullock v. Bullock, 699 So.2d 1205, 1212 (Miss. 1997), the court affirmed an order for the husband to pay the wife’s credit cards where they had been used to purchase a television, sheets and other household items for the marital dwelling, and to pay for two nights in a hotel when he locked her out of the house.
  • In Harbit v. Harbit, 3 So.3d 156, 161 (Miss.App. 2009), the court of appeals upheld the chancellor’s order classifying the debt in the wife’s name on her vehicle as marital, since she had borrowed the money to pay household expenses during a period when the husband was unemployed.
  • There is a presumption that all debt is marital, since there is a corollary presumption that all assets are marital. Horn v. Horn, 909 So.2d 1151, 1165 (Miss.App. 2005).
  • The fact that the spending may have been unreasonable or out of control is not dispositive. Wasteful spending and negligence in financial affairs are factors that the chancellor may consider in dividing the marital estate, but they are not controlling. Prescott v. Prescott, 736 So.2d 409, 418 (Miss.App. 1999).
  • Debts incurred by a spouse pursuing goals other than the general welfare of the marriage are considered separate, and not marital, debt. Garriga v. Garriga, 770 So.2d 978, 984 (Miss.App. 2000).
  • Debt incurred to pay a spouse’s gambling debts is separate debt. Lowrey v. Lowrey, 25 So.3d 274, 289 (Miss. 2010).
  • Debt incurred to pay off a party’s pre-marital debt should be classified as non-marital. Fitzgerald v. Fitzgerald, 914 So.2d 193, 197 (Miss.App. 2005).
  • Post-separation debt to pay pre-separation obligations may be considered marital only if there is adequate evidence to support a finding that the underlying debts were, in fact, marital. Phillips v. Phillips, 45 So.3d 684, 698-99 (Miss.App. 2010).
  • In making a determination of how to allocate the marital debt, the court has to apply the Ferguson factors. Pulliam v. Smith, 872 So.2d 790, 796 (Miss.App. 2004).
  • In Gambrell, v. Gambrell, 650 So.2d 517, 522 (Miss. 1995), the court said that “The liabilities as well as the assets of the parties must be taken into consideration when the chancellor effects an equitable distribution of marital [assets] and any other relief that may be appropriate such as alimony or child support.”

So, in a nutshell, our law is that the debts that are clearly for the benefit of the household are debts that the court should assign to one or both parties, according to the equitable principles laid out in Ferguson.

For my part, I question the wisdom of treating marital debt for living expenses the same way we do assets, but that’s the subject of another post. For now, as they say, it is what it is.

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