Timothy W. Harper v. Sheryl E. Harper , 169 A.3d 385 ( 2017 )

MAINE SUPREME JUDICIAL COURT Reporter of Decisions
Decision: 2017 ME 171 Docket: BCD-16-555
Submitted
on Briefs: June 29, 2017
Decided: August 1, 2017
Panel: SAUFLEY, C.J., and ALEXANDER, MEAD, GORMAN, JABAR, HJELM, and HUMPHREY, JJ.
TIMOTHY W. HARPER
v.
SHERYL E. HARPER
JABAR, J.
[¶1] Timothy W. Harper appeals from a judgment entered in the
Business and Consumer Docket (Horton, J.) partially denying his motion to
reconsider and amend a previously-entered divorce judgment distributing his
and Sheryl E. Harper’s assets. We affirm the judgment.
I. BACKGROUND
[¶2] The following facts are derived from the court’s final amended
divorce judgment and are supported by evidence in the record. See Berntsen
v. Berntsen, 2017 ME 111, ¶ 2, --- A.3d ---. Timothy and Sheryl were married
in New York in 1978. During their approximately thirty-seven-year marriage,
the couple amassed considerable assets and managed several businesses. The
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operation of two of those businesses is of particular importance for the
purposes of this appeal.1
A. Northeastern Seafood, Inc.
[¶3] Northeastern Seafood, Inc. (NES) is a commercial lobster business
operating from a wharf in Southwest Harbor. NES purchases lobsters from
fishermen and resells the lobsters to either commercial or individual buyers.
Sheryl was NES’s original proprietor, starting the business in 1986 and
developing it into a successful enterprise over time.
[¶4] Beginning sometime between 1997 and 2005, Timothy began
managing NES, while Sheryl assumed a less active role. After taking over
operation of NES, Timothy instituted a number of changes, including
implementing a separate and additional bookkeeping system and removing
the credit card processing infrastructure. Timothy removed the credit card
systems for the purpose of retaining cash that NES received for retail lobster
sales without recording it as corporate income. He also decided to sell
lobsters to only two commercial buyers, thereby significantly decreasing
NES’s profits. While in control of NES, Timothy opened and drew down upon
two lines of credit that, at the time of the divorce proceeding, carried a total
1 The parties have stipulated that these businesses are marital assets.
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balance of approximately $350,000. This was in stark contrast to Sheryl’s
management of the company; when she gave up control of the business, NES
operated with limited debt and substantial cash reserves.
B. The Dictator, Inc.
[¶5] The Dictator, Inc. (Dictator) is a corporation of which Timothy is
the sole shareholder. It is a profitable business that owns a scallop boat and
associated fishing permits, which have a collective value of approximately
$4,500,000. Between 2012 and 2015, Timothy engaged in a series of
transactions using Dictator operating accounts that were not related to the
business, including purchasing automobiles and recreational vehicles for his
personal use. He also used Dictator income to pay himself year-end bonuses
of $150,000 and $200,000.2
C. Separation and Divorce Proceedings
[¶6] The parties separated in July 2012, and on January 8, 2013,
Timothy filed a complaint for divorce in the District Court. On April 1, 2014,
the District Court (Augusta, Stanfill, J.) entered an interim order granting each
party exclusive possession of certain real estate and allocating between them
2 Timothy testified that these funds were used to pay the parties’ taxes for tax years 2012 and
2013 and argues that the court therefore erred in concluding that those payments constituted
economic misconduct. However, as the trier of fact, the court was at liberty to “believe or
disbelieve” this testimony. Huber v. Williams, 2005 ME 40, ¶ 15, 869 A.2d 737.
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responsibility for operating their various businesses. The order provided that
Timothy would be responsible for operating NES and Dictator during the
pendency of the divorce proceedings.
[¶7] Almost two years after the divorce complaint was filed, on
November 19, 2014, the matter was transferred to the Business and
Consumer Docket. There, the court conducted a hearing on the complaint in
two phases, the first of which began on January 28, 2015. Before the
conclusion of the first phase, on February 26, 2015, the court entered a
divorce judgment notwithstanding the pendency of other claims. See M.R.
Civ. P. 115(b). The following day, the court entered an amended interim order
that, inter alia, appointed a referee to begin the process of selling some of the
parties’ assets and to oversee the management of their businesses pending the
entry of a final divorce judgment.
[¶8] The second phase of the hearing took place over four days
beginning on April 7, 2016. At the conclusion of the second phase, the court
issued a forty-one-page amended divorce judgment distributing the parties’
assets and directing the referee to oversee the liquidation of the properties
and businesses described in the judgment.
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[¶9] The court found that Timothy engaged in economic misconduct
while operating NES and Dictator, which resulted in the marital estate being
deprived of “at least $800,000 from what should have been shared income
from” the two companies.3 Accordingly, when fashioning a property
distribution award, the court imputed to Timothy the receipt of $800,000.
See 19-A M.R.S. § 953(1) (2016).
[¶10] The judgment also ordered Timothy to reimburse Sheryl $50,000
in attorney fees after concluding that Timothy engaged in conduct that
unnecessarily prolonged litigation and that he improperly used marital funds
“in which [Sheryl] had a reasonable expectancy and interest” to pay his
attorneys.
[¶11] Timothy subsequently filed a motion to reconsider and amend
the judgment, which the court granted in part and denied in part. He now
appeals.
II. DISCUSSION
A. Economic Misconduct
[¶12] On appeal, Timothy challenges the court’s finding that, through
his operation of NES and Dictator, he committed economic misconduct
3 The court also found that Sheryl committed economic misconduct related to her management
of one of the parties’ businesses that resulted in the marital estate being deprived of $30,000.
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resulting in the diminution of the marital estate by approximately $800,000.
“A court’s finding that a party to a divorce did or did not engage in economic
misconduct is reviewed for clear error.” Catlett v. Catlett, 2009 ME 49, ¶ 31,
970 A.2d 287 (quotation marks omitted). We will not disturb a divorce
court’s finding of economic misconduct if that finding is “supported by
competent evidence in the record.” Efstathiou v. Aspinquid, Inc., 2008 ME 145,
¶ 35, 956 A.2d 110. Here, where Timothy failed to request further findings of
fact pursuant to M.R. Civ. P. 52(b), should there be any “gaps” in the court’s
factual analysis, we will “assume that the trial justice found all of the facts
necessary to support the decision.” Murray v. Murray, 529 A.2d 1366, 1368
n.1 (Me. 1987).
[¶13] There is competent evidence in the record to support the court’s
finding that Timothy engaged in economic misconduct while operating NES
and Dictator. His actions in unilaterally incurring significant liabilities,
implementing a separate accounting procedure, systematically retaining cash
from retail lobster sales, and refusing to sell lobsters to more than a few
commercial buyers while managing NES are well documented in the record.
These changes had a detrimental impact on the marital estate, and Timothy
provided no legitimate business purpose for instituting them. Likewise, as the
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court correctly noted, allegations that Timothy engaged in economic
misconduct while managing Dictator are substantiated by voluminous records
containing evidence of “largely undisputed transactions” through which he
unreasonably diminished the value of that marital asset.
[¶14] Further, we are not persuaded by Timothy’s argument that, to
prove economic misconduct, Sheryl was required to trace the
misappropriated funds into the hands of third parties. In Catlett, the case
upon which Timothy relies to make this argument, we upheld the trial court’s
finding that a spouse did not engage in economic misconduct after concluding
that “[w]hile [the spouse] may not have a good recollection as to how the
money was spent, there was no evidence that she spent the money in an
inappropriate manner.” 2009 ME 49, ¶ 32, 970 A.2d 287 (emphasis added).
Not so here. Unlike the circumstances in Catlett, where there was no evidence
to corroborate the allegations of economic misconduct, here there was ample
record evidence detailing the numerous transactions Timothy engaged in that
unreasonably and inappropriately diminished the value of the marital estate.
[¶15] Similarly, Timothy’s argument that a party must violate a court
order to commit economic misconduct is unpersuasive. Apart from the fact
that we have upheld trial courts’ findings of economic misconduct in the
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absence of a violation of a court order, see, e.g., Quin v. Quinn, 1997 ME 131,
¶¶ 7-9, 696 A.2d 432; Berntsen, 2017 ME 111, ¶¶ 3, 16-18, --- A.3d ---,
restricting the application of economic misconduct to only those instances
where a party has violated a court order may have the detrimental effect of
encouraging savvy litigants contemplating divorce to strategically deplete
marital assets before initiating the action. Therefore, the court did not err in
finding that Timothy engaged in economic misconduct that deprived the
marital estate of approximately $800,000.
B. Attorney Fees and Appointment of Referee
[¶16] Finally, Timothy argues that the court abused its discretion in
ordering him to pay a portion of Sheryl’s attorney fees and erred in
“appointing” a referee in its final judgment because, upon the issuance of the
judgment, the case was no longer “pending” for the purposes of M.R. Civ. P. 53.
We discern no abuse of discretion in the court’s decision to award Sheryl a
portion of her attorney fees. See Estate of Ricci, 2003 ME 84, ¶ 30, 827 A.2d
817 (stating that a court, in awarding attorney fees in a divorce proceeding,
may consider, among other factors, “whether the conduct of a party has
contributed to the duration of litigation” and “all factors that reasonably bear
on the fairness and the justness of the award” (quotation marks omitted)).
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Similarly, the court did not err in instructing the previously-appointed referee
to oversee distribution of the parties’ assets because this function is
contemplated by the Rule. See M.R. Civ. P. 53(c).
The entry is:
Judgment affirmed.
Susan Schultz McEvoy, Esq., Portland, for appellant Timothy W. Harper
Kristin A. Gustafson, Esq., Gustafson Family Law, Augusta, for appellee Sheryl
E. Harper
Business and Consumer Docket docket number FM-2014-02
FOR CLERK REFERENCE ONLY