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Middendorf v. Middendorf

Court of Appeals of Tennessee, Nashville

June 27, 2019

SHARON KAY MIDDENDORF
v.
BYRON SCOTT MIDDENDORF

          Session February 19, 2019

          Appeal from the Circuit Court for Davidson County No. 12D-1891 Phillip R. Robinson, Judge

         In this appeal, the parties were declared divorced in February 2013 when the trial court approved their marital dissolution agreement and entered a final decree of divorce; at the same time, the parties entered into a separate agreement which was to govern the transfer of the wife's marital interest in four businesses operated by the husband. In July 2014, the husband filed a motion pursuant to Rule 60.02(5) of the Tennessee Rules of Civil Procedure to have the decree set aside. The court granted the motion and vacated the decree, reinstating the marital relationship; the court also rescinded the agreement transferring the wife's interest in the businesses on the ground of mutual mistake. Following a trial, the court entered a final decree of divorce in 2017. Both parties appeal. Wife asserts that the trial court erred in vacating the 2013 decree, in rescinding the parties' agreement, and in failing to award her all of the attorney's fees she incurred at the trial court level. Husband appeals the division of the marital estate in the 2017 decree, and contends that the trial court erred when it failed to order the return of payments he made to wife pursuant to the agreement that was rescinded and alimony payments he made pursuant to the 2013 decree that was vacated. Both parties seek their attorney's fees on appeal. Upon our review, we affirm the judgment of the trial court in all respects and decline to award fees on appeal.

         Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Circuit Court Affirmed

          Donald Capparella and Tyler Chance Yarbro, Nashville, Tennessee, for the appellant, Sharon Kay Middendorf.

          Cathy Speers Johnson and Sarah Richter Perky, Franklin, Tennessee, for the appellee, Byron Scott Middendorf.

          Richard H. Dinkins, J., delivered the opinion of the court, in which Andy D. Bennett and Thomas R. Frierson, II, JJ., joined.

          OPINION

          RICHARD H. DINKINS, JUDGE

         I. Factual and Procedural History

         Sharon Middendorf ("Wife") and Byron Middendorf ("Husband") were married in 1983; they are the parents of one child, who reached the age of majority in April 2018. They separated in December 2011 after Wife learned of Husband's infidelity throughout the marriage, and Wife filed for divorce on June 18, 2012, on the ground of irreconcilable differences. Husband, an experienced businessman, represented himself during the initial divorce proceedings and settlement negotiations, during which time the parties agreed on a permanent parenting plan and marital dissolution agreement ("MDA"), which included spousal support and the division of marital property and debt. Wife's counsel, who prepared the documents, filed the MDA and parenting plan with the court and set the matter on the Court's non-contested docket for February 12, 2013. At the hearing, the court declined to approve the MDA, raising concerns relative to a provision in which Husband agreed to pay Wife one-half of the total amount of distributions and income he would receive from a marital business interest as alimony. The parties negotiated further and entered into another MDA and a separate Transfer Agreement ("TA") that governed the transfer of Wife's marital interest in four businesses held in Husband's name. The court approved the MDA and declared the parties divorced by decree entered February 22, 2013 ("the 2013 Decree").

         On July 1, 2014, represented by counsel, Husband filed a Petition to Modify Support, contending that the terms of the divorce were "unsustainable" and had "broken him financially in a one-year period"; he sought to have the court modify the terms of the final decree by reducing his support obligations "to an equitable level." Wife moved to dismiss the petition. Husband responded in opposition to Wife's motion, including a "Counter Motion for Relief Pursuant to T.R.C.P. 60.02(5)," in which he asserted that, during the time of the negotiations leading to the 2013 decree, he suffered a mental impairment that prevented him from advocating for himself; he requested that the court set aside the 2013 Decree "so as to come closer to conforming with our laws which require an equitable division of the marital estate." The countermotion was supported by Husband's affidavit and summaries he prepared of the terms of the initial and the final MDA and parenting plan, emails sent between Wife's counsel, Wife, and Husband, and a copy of his then-current income and expenses.[1]

         Husband amended the countermotion on January 12, 2016, to seek additional relief on the basis of Rule 60.02(3), specifically, that the 2013 Decree be set aside because it "purports to incorporate the so-called Transfer Agreement [and therefore] is void as against public policy." The trial court held a hearing over three days in January 2016 on all pending matters, including a petition filed by Wife to hold Husband in civil contempt.[2] At the hearing, Husband and his psychiatrist testified, and Husband introduced the deposition testimony of Wife's attorneys, and nineteen exhibits. Wife did not present proof.

         After the hearing was completed, on its own initiative, the court entered an order setting a hearing for counsel to show cause why an expert accountant should not be appointed pursuant to Rule 706 of the Tennessee Rules of Evidence to give testimony as to the income tax consequences to each party of the MDA, parenting plan, and TA; the order also proposed to reopen the proof to consider additional evidence as to Wife's income and expenses. Both parties objected to the reopening of proof as to Wife's income and expenses; each submitted the names of three accountants for the court's consideration. Following the show cause hearing, the court entered an order reopening the proof as to the tax consequences only, and appointing Vic Alexander, a certified public accountant, to prepare a report and provide expert testimony in that regard. Mr. Alexander duly submitted his report, and it was filed; Husband thereafter presented a report from Thomas Price, also a CPA. The parties then filed a joint stipulation that each expert would testify to the findings contained in their respective reports and waived their right to examine and cross examine those witnesses. After the joint stipulation was filed, the court entered an order closing the proof.

         The court entered an order on May 20, 2016 (the "May 20 order"), setting aside the 2013 Decree, holding:

In light of the Husband's history of severe sexual abuse as a child, his sexual addiction, his diagnosis of Post-Traumatic Stress Disorder and his severe depression, his inability to advocate or properly defend himself and the inequity of the alimony award in this case rendering the Husband almost unable to comply with the Court's Order, this Court finds by clear and convincing evidence that this case is one of extraordinary circumstances and extreme hardship justifying Rule 60.02(5) relief.

         The court also found that Husband's delay of 15 months after the entry of the judgment was "timely and within a reasonable period." In the same order, the court declined to hold that the reference to the TA in final divorce decree rendered the decree void; instead, the court applied the law of contracts and rescinded the TA, finding that "the parties suffered a mutual mistake as to the character and deductibility by the Husband of the Wife's share of the disbursements for income tax purposes."[3]

         Husband thereupon answered the complaint for divorce, including a counter-complaint for divorce on the ground of cruel and inhuman treatment. Wife amended her complaint to allege adultery and inappropriate marital conduct, and Husband responded. Trial was held over two days in August 2017 at which Wife, Vic Alexander, Husband, and Thomas Price testified.

         The court entered a Final Decree of Divorce on November 20, 2017 ("the 2017 decree"), awarding Wife the divorce on the ground of adultery, naming Wife as primary residential parent of the parties' son, setting child support, and establishing a parenting schedule. The court classified, valued, and divided the marital assets (including the four companies that were previously the subject of the TA) and debts, and ordered that Wife would be responsible for two-thirds of any taxes, penalties, and interest incurred by Husband, whose tax liability for tax years 2013, 2014, and 2015 was being determined in an audit by the Internal Revenue Service that had resulted from Husband's attempts to deduct the payments he made to Wife pursuant to the TA. The court found Wife's testimony relative to the nearly $19, 000 in monthly expenses she sought not credible and awarded her $10, 800 per month as alimony in futuro. The court also awarded Wife $73, 000, a portion of the attorney's fees she incurred in the proceeding.

         Both parties appeal. Wife contends that the trial court erred in setting aside the final decree and in rescinding the TA and that she is entitled to all of her attorney's fees incurred in the trial court. Husband asserts that the court failed to account for monies and alimony paid to Wife pursuant to the TA and the MDA, erred in its division of the marital estate, and erred in awarding attorney's fees to Wife. Both parties seek an award of attorney's fees for this appeal.

         II. Analysis

         Because this case was tried without a jury, our review of the trial court's factual findings is de novo upon the record, accompanied by a presumption of correctness, unless the preponderance of the evidence is otherwise. Tenn. R. Civ. P. 13(d). Our review of the trial court's conclusions of law is de novo upon the record with no presumption of correctness. Tryon v. Saturn Corp., 254 S.W.3d 321, 327 (Tenn. 2008).

         A. Relief Pursuant to Rule 60.02(5)

         Rule 60.02 of the Tennessee Rules of Civil Procedure provides in pertinent part:

On motion and upon such terms as are just, the court may relieve a party or the party's legal representative from a final judgment, order or proceeding for the following reasons: . . . (5) any other reason justifying relief from the operation of the judgment. The motion shall be made within a reasonable time . . .

         "Parties seeking Tenn. R. Civ. P. 60.02 relief must substantiate their request by clear and convincing evidence." McCracken v. Brentwood United Methodist Church, 958 S.W.2d 792, 795 (Tenn. Ct. App. 1997) (citing Davidson v. Davidson, 916 S.W.2d 918, 923 (Tenn. Ct. App.1995); Duncan v. Duncan, 789 S.W.2d 557, 563 (Tenn. Ct. App. 1990)). "These requests are addressed to the trial court's discretion, and thus appellate courts review decisions regarding Tenn. R. Civ. P. 60.02 relief using the abuse of discretion standard." McCracken, 958 S.W.2d at 795 (citing Underwood v. Zurich Ins. Co., 854 S.W.2d 94, 97 (Tenn. 1993); Banks v. Dement Constr. Co., 817 S.W.2d 16, 18 (Tenn. 1991); Day v. Day, 931 S.W.2d 936, 939 (Tenn. Ct. App. 1996); Marr v. Montgomery Elevator Co., 922 S.W.2d 526, 528 (Tenn. Ct. App. 1995); John Barb, Inc. v. Underwriters at Lloyds of London, 653 S.W.2d 422, 424 (Tenn. Ct. App. 1983)). "A motion under the catch-all provision of subsection (5) filed more than a year after final judgment is generally untimely unless extraordinary circumstances excuse the party's failure to seek relief sooner." Hussey v. Woods, 538 S.W.3d 476, 486 (Tenn. 2017) (citing Taylor v. Wetzel, No. 4:CV-04-553, 2014 WL 5242076, at *6 (M.D. Pa. Oct. 15, 2014)).

         In the case of Beem v. Beem, the husband sought to have the court set aside a marital dissolution agreement based upon his asserted lack of mental capacity to enter into such an agreement; the Court observed:

[I]t is rare indeed for a court to find that a contract is unenforceable based on the unsound emotional state of a contracting party. The party seeking to avoid a contract on this basis must show that he or she "had no reasonable perception or understanding of the nature or terms of the contract." Roberts [v. Roberts], 827 S.W.2d [788] at 791-92 [(Tenn. Ct. App. 1991)]. This Court has explained the burden of proof for a party seeking to avoid a contract:
Thus, persons will be excused from their contractual obligations on the ground of incompetency only when (1) they are unable to understand in a reasonable manner the nature and consequences of the transaction or (2) when they are unable to act in a reasonable manner in relation to the transaction, and the other party has reason to know of their condition.

McMahan v. McMahan, No. E2004-03032-COA-R3-CV, 2005 WL 3287475, at *7 (Tenn. Ct. App. Dec. 5, 2005).

Beem v. Beem, No. W2009-00800-COA-R3-CV, 2010 WL 1687782, at *8 (Tenn. Ct. App. Apr. 28, 2010).

         The trial court herein made extensive findings in the May 20 order, including the following:

. . . The Court finds [Husband] was suffering shame and embarrassment over his sexual abuse and his behavior which resulted in the destruction of his marriage. The Court finds the Husband's testimony as to his mental state to be credible and compelling. He expressed his intent to protect his spouse and child from the shame and embarrassment of his behavior. The Court finds the Husband refused to retain counsel as he believed to do so would somehow appear to be an effort on his half to justify his behavior or defend himself. . . .
Based on all of the foregoing, this Court finds that because of the Husband's mental state, he was unable to understand in a reasonable manner, the nature and consequences of this particular agreement or contract dealing with the support of his Wife and child under these circumstances. Further, he was unable to act in a reasonable manner regarding the Marital Dissolution Agreement in failing to seek legal advice or have the agreement reviewed by an independent attorney. Finally, the Court finds the Wife was aware of the Husband's history of abuse and his sexual addiction and that he was under the care of a psychiatrist. Having little evidence before it as to values, the Court can draw no conclusions as to the reasonableness of the division of other assets in the Marital Dissolution Agreement.
Considering the severe emotional issues suffered by the Husband and his difficulty in advocating for his own interests, the Court finds that in this unique set of circumstances, the Husband's delay of fifteen months after the entry of the judgment was timely and within a reasonable period of time as required by Rule 60.02.
Having found that the Husband was suffering under a mental or emotional impairment that prevented him from defending or advocating for himself and under the circumstances, his relief under Rule 60.02 (5) was brought within a reasonable time, the court must now determine whether the facts of this case fall into the extreme, unique, exceptional or extraordinary circumstances or extreme hardship which would justify relief. In light of the Husband's history of severe sexual abuse as a child, his sexual addiction, his diagnosis of Post-Traumatic Stress Disorder and his severe depression, his inability to advocate or properly defend himself and the inequity of the alimony award in this case rendering the Husband almost unable to comply with the Court's Order, this Court finds by clear and convincing evidence that this case is one of extraordinary circumstances and extreme hardship justifying Rule 60.02(5) relief.
Based on this ruling, the Court finds that the Final Decree of Divorce entered on the 22nd day of February, 2013, is hereby set aside in its entirety nunc pro tunc to February 22, 2013.

         Wife argues that the Trial Court erred in finding that there was clear and convincing evidence to support the decision to set aside the final divorce decree under Tennessee Rule of Civil Procedure 60.02(5) and that the court erred in finding that the motion was timely filed. She contends that the following facts necessitate reversal:

Husband (1) negotiated the MDA for seven months before executing it, (2) admitted that he understood that he was signing a divorce decree and understood its terms, (3) Husband's medical proof showed that his cognitive abilities were not impaired at the time he reached the settlement, and (4) Husband did not file his Rule 60.02(5) motion within a reasonable time when he waited 17 months after the Final Decree was entered before requesting that it be set aside[.] In our consideration of this issue, we are guided by the standard of review set forth in In re Baby:
Our review of a ruling on a motion brought pursuant to . . . Rule 60.02, however, is limited. This Court may reverse only if the trial court has abused its discretion. Discover Bank v. Morgan, 363 S.W.3d 479, 487 (Tenn. 2012); Henry v. Goins, 104 S.W.3d 475, 482 (Tenn. 2003). A trial court abuses its discretion only when it applies an incorrect legal standard, reaches an illogical result, commits clear error in its assessment of the evidence, or relies upon flawed reasoning that results in an injustice. Armbrister v. Armbrister, 414 S.W.3d 685, 693 (Tenn. 2013) (quoting Gonsewski v. Gonsewski, 350 S.W.3d 99, 105 (Tenn. 2011)).

447 S.W.3d 807, 817 (Tenn. 2014). We have carefully considered the evidence cited by the parties in support of their respective positions. In our review, we accord great deference to credibility determinations made by the trial court.[4]

         Husband testified he negotiated the divorce settlement while he was facing chronic depression and made a conscious decision not to hire a lawyer. He testified that he wanted to punish himself in this divorce and refused to hire a lawyer because it "was like standing up for myself[;] . . to do that would have been an offense to [Wife], and I had already done so much damage." He testified that he felt shame and worthlessness in January 2012 and contemplated taking his own life; as well as that he wrote a letter to Wife on June 28, 2012, in which he stated that he, "being of sound mind and body[, ] agree that I will give [Wife] all of my salary . . . [and] 50 percent of all my bonuses from Equinox Information Systems" as well as "50 percent of all proceeds of Equinox Information Systems if ever sold," their "house and all our personal goods." Husband testified that he agreed that "the financial agreements he entered into were not that of an experienced businessman" and that he was too ashamed and depressed to care; he acknowledged that during the time period he was negotiating the divorce settlement, he was the CEO of Equinox Information Systems and oversaw sales, business development, customer support and was able to understand complex concepts such as phantom income, and that he was able to negotiate more favorable terms in the MDA relating to the payment of the home equity line of credit associated with the marital residence.

         Attorney Rose Palermo, who filed the original complaint on behalf of Wife, testified that she met with Husband in July 2012 to discuss the settlement agreement he and Wife had come to, and that during the meeting, Husband was "absolutely determined he was going to get this case settled" and that he "is a very bright man," "very polite," and that she "didn't observe him being impaired in any way." She testified that he appeared to perceive and understand the nature and terms of the MDA. She also testified that husband "didn't have any problems functioning in the real world. . . . just . . . in his personal life." Attorney Beth Tannenbaum, who also represented Wife, testified that, during the settlement discussion in July 2012, Husband stated that "he did not want his wife to have change in her lifestyle, he did not want their son to change his lifestyle, and that he came up with a game plan to allow them to do this."

         Husband's psychiatrist, Dr. Karen Rhea, provided extensive testimony relative to Husband's mental condition and aspects of his life history bearing on his condition. She testified that she began treating Husband in January 2013, and after an evaluation, diagnosed him with "post-traumatic disorder, chronic; major depressive disorder, single episode severe without psychotic features"; and "chronic low-grade depression." She testified that prior to seeing her, Husband had been treated by another psychiatrist, Dr. Scott West, since January 2012, and two others prior to that. When asked whether Husband had the capacity to enter into the MDA and comprehend what he was doing, Dr. Rhea testified:

A. I think Mr. Middendorf was severely impaired, not only by his depression, but by his post-traumatic stress disorder. And because of the way post-traumatic stress impacts the triggers, and the areas are somewhat more specific, so this was really -- signing the divorce decree would really be into an area where he has trouble functioning. Q. Okay. And what area would that be?
A. Well, in his family life. If you recall, he was abandoned by his father and abused at the same time. And abandonment was not ...

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