In Re The Marriage Of: Gabriel Y. Lee v. Carol Ann Kennard ( 2013 )


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  •     IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON
    c/>cr
    In the Matter of the Marriage of             )                                    CO
    )         No. 68266-1-1              CO
    GABRIEL Y.LEE,                               )
    )         DIVISION ONE
    Respondent,             )
    )         PUBLISHED OPINION
    c5
    v.                              )
    en   ;":---
    CAROL ANN KENNARD,                           )
    Appellant.               )         FILED: September 16,   2013
    Appelwick, J. — Lee and Kennard separated in 1999 and entered an agreed
    decree of dissolution in 2000. In 2011, Kennard sought entry of a QDRO with a present
    day effective date. Kennard also sued to collect spousal maintenance and child support
    arrears, based on Lee's failure to pay the automatic cost of living increases required by
    escalation clauses in the separation agreement and child support order. The trial court
    held that both escalation clauses were unenforceable and void. The trial court modified
    the effective date of the QDRO to the date of separation and sanctioned Kennard's
    attorney under CR 11 on that issue. We affirm as to striking the child support escalator,
    entering the QDRO effective as of the parties' date of separation, and imposition of CR
    11 sanctions. We reverse as to the agreed maintenance escalator and remand for
    enforcement of that provision and for award of attorney fees on that issue.
    No. 68266-1-1/2
    FACTS
    Carol Ann Kennard and Gabriel Lee separated on February 15, 1999.           Lee's
    attorney withdrew from representation in January 2000. In February 2000, Kennard and
    Lee, now pro se, signed a separation contract and property settlement agreement, as
    well as an agreed child support order.      Kennard's attorney, H. Michael Finesilver,
    drafted both the property settlement agreement and the child support order.          The
    agreement was incorporated into a decree of dissolution. The decree and child support
    order were entered ex parte.
    The decree awarded Kennard "[o]ne-half of the husband's Group Health
    retirement benefits, subject to the terms and conditions as outlined in the Qualified
    Domestic Relations Order [QDRO] which accompanies this agreement, except for the
    401 (k)." A QDRO was never attached to the final agreement.
    The decree also awarded Kennard spousal maintenance of $9000 per month.
    The maintenance award contained an automatic escalation clause requiring the award
    to "be adjusted every three years based upon the cost of living index, all urban
    consumers for the greater Seattle and Everett area."      Kennard and Lee agreed that
    "[m]aintenance is otherwise nonmodifiable by either party, unless agreed to in writing by
    the parties."
    The child support order required Lee to pay $875 per month for each of their two
    children.   Like the maintenance escalator, the child support order contained an
    automatic escalation clause: "The amount of child support will be increased every three
    No. 68266-1-1/3
    (3) years based on the cost of living index, but in no event shall the amount be in
    excess of $1,500 per month, per child, nor any less than $875 per month, per child."
    The parties do not dispute that Lee regularly paid $9000 per month in
    maintenance and the child support amount originally ordered. But, Lee never paid the
    automatic cost of living increases for spousal maintenance or child support.
    Eleven years later, in 2011, Kennard's attorney drafted a proposed QDRO and
    sent it to the pension plan administrator for approval. The QDRO stated that Kennard,
    as alternate payee:
    [l]s entitled to a portion of the amounts credited to Participant's accounts
    in the Plan as part of a just and right division of the estate of the parties.
    Such portion is hereafter defined as "Alternate Payee's Share of Plan
    Benefits." "Alternate Payee's Share of Plan Benefits" shall be an amount
    equal to a portion of the total amount held in Participant's account under
    the Plan, as of the date of this Order.       The portion assigned for the
    Alternate Payee's Share of Plan Benefits shall be a percentage equivalent
    to fifty percent (50%) of the total vested amount held in Participant's
    accounts under the Plan.
    (Emphasis added.) The QDRO also noted "[t]hat the amounts credited to Participant's
    accounts under the Plan from July 22, 1979 to February 11, 2000 are the community
    property of both Participant and Alternate Payee." After the plan administrator approved
    the proposed QDRO, it was presented to Lee who refused to sign and approve it for
    entry by the court. Kennard subsequently moved for adoption of the proposed QDRO,
    for past due spousal maintenance and child support, as well as attorney fees.
    Lee requested that the trial court declare both escalation clauses void and
    unenforceable, because they were tied solely to the consumer price index (CPI). Lee
    also argued that the proposed QDRO was defective, because it entitled Kennard to half
    of Lee's pension, even benefits accruing after their separation and dissolution.
    No. 68266-1-1/4
    Essentially, Lee explained, Kennard would receive 18 years of plan contributions,
    instead of six years (the amount of time between initiation of the plan and their date of
    separation). Lee argued that this did not comport with the parties' intention. Lastly, Lee
    requested that the trial court sanction Kennard's attorney under CR 11 for submitting
    the QDRO.
    The court held that the child support and maintenance escalation clauses were
    unenforceable and declared them void.1           The trial court also refused to enforce
    Kennard's proposed QDRO as written, because it attempted to achieve a result contrary
    to the terms of the property settlement agreement and agreed decree.              The court
    modified the pension plan segregation date to February 15, 1999—the date of the
    parties' separation. Lee and Kennard signed the modified QDRO. The court awarded
    CR 11 sanctions against Kennard's attorney for $1000 as to his improper QDRO
    submission only. Kennard appeals.
    DISCUSSION
    Kennard argues that the trial court erred by holding the child support and spousal
    maintenance automatic escalation clauses void            and   unenforceable.    We review
    questions of law de novo.       Bauman v. Turpen. 
    139 Wn. App. 78
    , 87, 
    160 P.3d 1050
    (2007).     Kennard also argues that the trial court erred in refusing to enter the QDRO
    presented by her attorney. Lee requests that we affirm and award him attorney fees on
    appeal, because Kennard's appeal is frivolous and made in bad faith.
    1 The contract included a severability clause stating that "[i]n the event that any
    portion of this Agreement shall be declared invalid by any court of competent
    jurisdiction, those parts not at issue shall still be of full force and effect."
    No. 68266-1-1/5
    I.   Child Support Escalation Clause
    Kennard argues that the trial court erred by concluding that the automatic
    escalation clause of the child support order was unenforceable. Kennard claims the trial
    court based its conclusion on two erroneous findings: (1) the escalation clause did not
    contain a lid and (2) Kennard's counsel conceded the clause was unenforceable.
    However, this mischaracterizes the basis for the trial court's holding. The court found
    that the child support escalation clause was tied solely to the CPI and "was not based
    on . . . the ability of the husband to pay." Therefore, the court held the escalator void
    and unenforceable, because "[t]he substantive law of the state of Washington at the
    time the contract was entered into and the decree was entered had clearly stated for
    fifteen years or more that CPI-based escalator clauses are not lawful."
    In 2000, when the child support order at issue was entered, it was well
    established that child support escalation clauses tied solely to the CPI were
    unenforceable. In re Marriage of Edwards, 
    99 Wn.2d 913
    , 917-18, 
    665 P.2d 883
     (1983)
    (recognizing the "clear evil" of such clauses). To be valid, escalators must be related to
    the child's needs and the parent's ability to pay. ]d at 918. CPI escalators violate this
    rule, because a rise in prices may not result in a correlative increase in the parent's
    wages or general ability to pay. 
    Id. at 917-18
    . Moreover, since 1988, chapter 26.19
    RCW provided the exclusive means for calculating periodic adjustments and
    modifications of child support, including automatic modification clauses authorized by
    RCW 26.09.100(2).     RCW 26.19.035(1); RCW 26.19.020.         The child support statute
    applies even in the case of separation agreements, such as the one used here. RCW
    No. 68266-1-1/6
    26.09.070(3). Nowhere does it allow escalation clauses tied solely to the CPI as a basis
    for child support increases. Thus, the escalation clause here was not authorized by
    law.2 Illegal escalation clauses are voidable and cannot be retroactively enforced to
    collect unpaid child support. In re Marriage of Stoltzfus, 
    69 Wn. App. 558
    , 561, 
    849 P.2d 685
     (1993). We hold that the trial court did not err in holding that the child support
    escalation clause was unenforceable and in declaring it void.
    II.   Spousal Maintenance Escalation Clause
    Kennard argues that the trial court erred in holding the automatic escalation
    clause of the spousal maintenance agreement unenforceable as a matter of law,
    because it had no cap. In addition to containing no cap, the trial court found that the
    maintenance escalation clause was tied solely to the CPI and was not based on
    Kennard's needs or Lee's ability to pay. The trial court's conclusion was based on In re
    Marriage of Coyle, 
    61 Wn. App. 653
    , 
    811 P.2d 244
     (1991).
    In Covle, the court held that a spousal maintenance escalation clause imposed
    by the trial court following trial was voidable, because it was tied solely to the CPI, was
    not based on the husband's ability to pay or the wife's needs, and did not contain a
    maximum lid.      Id. at 659-60.   One of the factors a court must consider in awarding
    2 Bauer v. Bauer recognized that a parent has a right to agree to do more for his
    or her children than the law requires. 
    5 Wn. App. 781
    , 788, 
    490 P.2 1350
     (1971).
    Neither chapter 26.09 nor 26.19 RCW precludes a parent from agreeing to pay more
    child support than the statute requires. Child support is based on an income shares
    model that must be applied each time support is adjusted or modified. RCW 26.19.020;
    RCW 26.19.035. Escalator clauses may not be used in lieu of this calculation. Without
    calculating what the statute requires at the time of any adjustment or modification, one
    cannot determine if a parent is agreeing to pay more. Here, nothing in the child support
    order asserted that Lee was agreeing to pay more than required by the statute. Nor did
    it provide for the calculations necessary to verify that Lee was in fact paying more than
    the statute required when the automatic three year escalators were to be applied.
    No. 68266-1-1/7
    maintenance is the "ability of the spouse or domestic partner from whom maintenance is
    sought to meet his or her needs and financial obligations." RCW 26.09.090(f); see also
    In re Marriage of Foley. 
    84 Wn. App. 839
    , 845-46, 
    930 P.2d 929
     (1997). Therefore, CPI
    maintenance escalators imposed by a trial court violate this statutory requirement,
    because a rise in consumer prices does not necessarily mean an increase in the obligor
    spouse's wages or general ability to pay. See Edwards, 
    99 Wn.2d at 917-18
    .
    Kennard    nevertheless   distinguishes    Covle,   arguing   that   nonmodifiable
    maintenance escalators entered into by agreement like the one here are enforceable,
    unlike the one that resulted from a trial in Covle. Kennard is correct that a separation
    contract precluding or limiting the court's power to modify an agreed maintenance
    award is to be enforced according to its terms. RCW 26.09.070(7); In re Marriage of
    Glass, 67 Wn. App 378, 390-92, 
    835 P.2d 1054
     (1992). We have previously recognized
    a distinction between what courts may do and what the parties may do by agreement
    with respect to the modifiability of maintenance. In re Marriage of Hulscher, 
    143 Wn. App. 708
    , 714-15, 
    180 P.3d 199
     (2008). The court may not impose nonmodifiability, but
    the parties may agree to do so.      ]d    If "'the contract precludes the modification of
    maintenance absent mutual consent, then the court lacks jurisdiction to modify the
    contract if it was fair at the time of execution."' Id at 716 (quoting Glass, 
    67 Wn. App. at 390
    ).
    The same analysis is applicable to the CPI escalator at issue here. As in Covle,
    the trial court may not impose a CPI escalator on the parties. However, no Washington
    case has held that the parties are not free to agree to such an escalator in their
    No. 68266-1-1/8
    settlement agreement.      See 
    id.
          Lee and Kennard agreed to an automatic,
    nonmodifiable spousal maintenance escalation clause based on the cost of living index.
    Unless it is found unfair at the time of execution, the court must enforce that agreement
    according to its terms. Below, Lee did not allege that the agreement was unfair at the
    time it was entered into, and the trial court made no such finding. The argument instead
    focused on whether the escalator was unenforceable as a matter of law. Therefore, we
    hold that the trial court erred as a matter of law in holding that the spousal maintenance
    escalation clause was void and unenforceable.
    III.   Qualified Domestic Relations Order
    Kennard argues that the trial court erred by refusing to enter the QDRO as
    presented by her attorney. She contends that the trial court had no factual basis for
    concluding that the parties contemplated her interest in Lee's pension being cut off on
    their date of separation. Therefore, she argues, the trial court improperly reformed the
    contract. Essentially, the parties dispute when the date of segregation of the pension
    benefits should be. .
    We review the language of a dissolution decree de novo.         In re Marriage of
    Thompson, 
    97 Wn. App. 873
    , 877, 
    988 P.2d 499
     (1999).             When an agreement is
    incorporated in a dissolution decree, the court must ascertain the parties' intent at the
    time of the agreement. In re Marriage of Boisen, 
    87 Wn. App. 912
    , 920, 
    943 P.2d 682
    (1997). If a decree is ambiguous, general rules of statutory and contract construction
    apply- Thompson, 97 Wn. App. at 878.
    8
    No. 68266-1-1/9
    The agreement here specified that any court interpreting the document should
    apply the substantive law of Washington. Under Washington law, a trial court has broad
    discretion in distributing martial property, both community and separate. In re Marriage
    of Griswold, 
    112 Wn. App. 333
    , 339, 
    48 P.3d 1018
     (2002).           Pension benefits are
    deferred income. In re Marriage of Landry, 
    103 Wn.2d 807
    , 810, 
    699 P.2d 214
     (1985).
    As such, pension benefits that accrue during a term of employment are characterized in
    the same way as the income earned during that term of employment.             IcL   When
    spouses are living separate and apart, their respective earnings "shall be the separate
    property of each." RCW 26.16.140.
    Case law does not support simply dividing the total pension in half. In re Chavez.
    
    80 Wn. App. 432
    , 436, 
    909 P.2d 314
     (1996). Pension increases attributable to higher
    wages during continued employment postdissolution are community interests.          In re
    Marriage of Bulicek, 
    59 Wn. App. 630
    , 638, 
    800 P.2d 394
     (1990). A spouse is entitled
    to share in postdissolution annual adjustments or cost of living increases to pension
    benefits, but not increases due solely to additional years of service. Chavez, 80 Wn.
    App. at 438. Applying Washington law to the plain language of the decree, Kennard's
    50 percent interest in the pension did not include any increases attributable to Lee's
    years of continued employment postdissolution.       The trial court's modified QDRO
    applying the separation date as the applicable end point was consistent with that law.
    Because this decree was based on an agreement authorized by RCW 26.09.070,
    the question remains whether the parties intended to do something more than the trial
    court could have ordered in a contested case. The agreement indicated the parties'
    No. 68266-1-1/10
    intent to segregate their property on their separation date (stipulated as February 15,
    1999):
    2.1    Except as otherwise authorized by this Agreement, each
    spouse hereby covenants to make no claim upon the property or earnings
    assigned herein to the other party by way of marital community interest
    therein, and hereby releases any and all rights or interest in any real or
    personal property after the date of separation of the parties or the date of
    this Agreement, which ever date occurs first. Both parties agree that
    neither will assert any claim or demand of any kind against the other
    except as expressly recognized herein.
    The trial court approved the QDRO for one-half of the pension as of the date of
    separation. This is consistent with paragraph 2.1 of the agreement, unless the pension
    was subject to the "[ejxcept as otherwise authorized by this Agreement" clause.
    Kennard points to no language in the agreement that supports a conclusion that the
    pension was an exception.
    Under federal law, the original QDRO should have specified "the number of
    payments or period to which such order applies." 
    29 U.S.C. § 1056
    (d)(3)(C)(iii) (2013).
    It was not attached to the agreement or decree Kennard submitted to the court. If a
    written contract is not a complete expression of the parties' agreed-upon terms, the
    terms not included may be proved by extrinsic evidence if they do not contradict the
    written terms.    Berg v. Hudesman. 
    115 Wn.2d 657
    , 670, 
    801 P.2d 222
     (1990).            But,
    Kennard offered no extrinsic evidence to support her argument. She relied exclusively
    on her own declaration as to her intent and understanding. However, subjective intent
    of one party to an agreement does not establish the intent of the parties.          Ross v.
    Bennett, 
    148 Wn. App. 40
    , 46, 
    203 P.3d 383
     (2008). Kennard has not established that
    the pension benefits were intended to be treated as an exception to paragraph 2.1 of
    the agreement or that they were intended to be divided based on her stated intent.
    10
    No. 68266-1-1/11
    We hold that the trial court did not err in refusing to adopt the proposed QDRO's
    11 year postdissolution effective date, instead segregating the pension plan on the
    parties' separation date.
    IV.    CR 11 Sanctions
    Kennard argues that the trial court erred in awarding CR 11 sanctions against her
    attorney, because it did not enter findings that he acted in bad faith or that his argument
    was frivolous. This court reviews a trial court's imposition of CR 11 sanctions for abuse
    of discretion.   Biggs v. Vail. 
    124 Wn.2d 193
    , 197, 
    876 P.2d 448
     (1994).           CR 11
    authorizes a trial court to impose appropriate sanctions if a party's filing is not well
    grounded in fact, or not warranted by existing law or a good faith argument to alter
    existing law.3 Conom v. Snohomish County. 
    155 Wn.2d 154
    , 163-64, 
    118 P.3d 344
    (2005). Here, the trial court made these exact findings on the record at oral argument
    then incorporated those findings by reference into its memorandum of decision. The
    court concluded that the proposed QDRO's effective date was clearly contrary to the
    original decree and was therefore neither well grounded in fact nor warranted by
    existing law. The trial court did not abuse its discretion in awarding CR 11 sanctions
    against Finesilver.
    3 Contrary to Kennard's implication, In re Recall of Pearsall-Stipek does not
    require a trial court to always find bad faith in order to award CR 11 sanctions. 
    136 Wn.2d 255
    , 266-67, 
    961 P.2d 343
     (1998). Pearsall-Stipek applies in the narrow context
    of recall petitions. Id.: see also In re Recall of Lindguist, 172Wn.2d 120, 141,258P.3d
    9 (2011). A court may not award expenses and attorney fees against a petitioner who
    brings a merely frivolous recall petition—the court must find bad faith. kL In nonrecall
    cases, a frivolous filing and a bad faith filing are considered alternative violations, and
    either can result in sanctions. Harrington v. Pailthorp, 
    67 Wn. App. 901
    , 912-13, 
    841 P.2d 1258
     (1992).
    11
    No. 68266-1-1/12
    V.   Trial Court's Failure to Award Attorney Fees
    Kennard argues that the trial court erred in failing to award attorney fees for
    having to move to enforce the child support and maintenance escalators.         Kennard
    requests attorney fees and costs "pursuant to RAP 14(1) and (3), RCW 26.09.040, and
    RCW 26.18.160.'* RCW 26.18.160 mandates an award of reasonable attorney fees to
    the prevailing party in an action to enforce child support or spousal maintenance.
    Kennard was not the prevailing party below and is not the prevailing party here as to
    child support, so she is not entitled to fees below or on appeal based on that claim.
    However, she has prevailed on her claim to enforce maintenance and is entitled to an
    award of reasonable attorney fees on appeal, solely attributable to that issue.
    Assuming on remand that the settlement agreement is not found to have been unfair at
    the time it was made, the trial court should award Kennard her reasonable attorney fees
    incurred solely with respect to the maintenance issue in the initial proceeding, on
    appeal, and on remand.
    VI.   Sanctions on Appeal
    Lee requests that we award him attorney fees as a sanction under RAP 18.9(a),
    because the appeal is frivolous.
    "In determining whether an appeal is frivolous and was, therefore,
    brought for the purpose of delay, justifying the imposition of terms and
    compensatory damages, we are guided by the following considerations:
    (1) A civil appellant has a right to appeal under RAP 2.2; (2) all doubts as
    to whether the appeal is frivolous should be resolved in favor of the
    4 Presumably Kennard means RCW 26.09.140, instead of RCW 26.09.040,
    which does not mention attorney fees and costs. The language of RCW 26.09.140
    clearly makes an award of fees and costs discretionary. Kennard provides no argument
    as to why the trial court abused its discretion in failing to award fees under RCW
    26.09.140, so we need not consider it. RAP 10.3(6).
    12
    No. 68266-1-1/13
    appellant; (3) the record should be considered as a whole; (4) an appeal
    that is affirmed simply because the arguments are rejected is not frivolous;
    (5) an appeal is frivolous if there are no debatable issues upon which
    reasonable minds might differ, and it is so totally devoid of merit that there
    was no reasonable possibility of reversal."
    Tiffany Family Trust Corp. v. City of Kent. 
    155 Wn.2d 225
    , 241, 
    119 P.3d 325
     (2005)
    (internal quotation marks omitted) (quoting Green River Comty. Coll. Dist. No. 10 v.
    Higher Educ. Pers. Bd., 
    107 Wn.2d 427
    , 442-43, 
    730 P.2d 653
     (1986)).             Here, the
    maintenance issue was a debatable issue.        We cannot conclude from the record that
    the appeal was brought solely for the purpose of delay.
    Lee argues that even if we do not find all Kennard's assignments of error
    frivolous, we can impose partial sanctions under In re Marriage of Farr. 
    87 Wn. App. 177
    , 
    940 P.2d 679
     (1997). In Farr, we stated:
    We partially grant Farr's request for fees and costs under RAP 18.9(a).
    Although Martin has prevailed on his challenge to the imposition of jail
    sanctions, his arguments relating to the right of autonomy, modification,
    the state privacy act, and recusal are frivolous. We award Farr her fees
    and costs for those portions of the appeal upon which she has prevailed,
    subject to her compliance with RAP 18.1.
    Id at 188-89.      Sanctions are authorized when a person (1) uses the rules for the
    purpose of delay, (2) files a frivolous appeal, or (3) fails to comply with the rules to pay
    terms or compensatory damages. RAP 18.9(a). RAP 18.9(a) does not speak in terms
    of filing one or more frivolous issues or assignments of error—only a frivolous appeal as
    a whole.   The standard stated in Tiffany Family Trust Corp. has been consistently
    applied both before and after the Farr decision. See, e.g., Advocates for Responsible
    Dev. v. W. Wash. Growth Mamt. Hearings Bd.. 
    170 Wn.2d 577
    , 580, 
    245 P.3d 764
    13
    No. 68266-1-1/14
    (2010). The sanctions awarded in Farr cannot be squared with the rule or the case law
    interpreting the rule.5 We decline to follow its example.
    Alternatively, Lee requests that we award him attorney fees under CR 11,
    arguing that the appeal was brought in bad faith. We cannot find that Kennard has used
    the rules for the purpose of delay, filed a frivolous appeal, or failed to comply with the
    rules, as required for an award of attorney fees as a sanction under RAP 18.9.
    We affirm the trial court decision as to the child support order, the QDRO, and
    the award of CR 11 sanctions.     We remand the issue of the maintenance escalator to
    the trial court. Unless the separation agreement is set aside, Kennard is entitled to an
    award of reasonable attorney fees incurred related solely to the maintenance issue, in
    the prior proceeding below, on appeal, and on remand.
    WE CONCUR:
    ^_(Lo^li2 cy                                       ?^tei
    5 Farr was a family law case. 
    86 Wn. App. 177
    . The fee award could have been
    ordered under chapter 26.09 RCW.
    14