Michigan Court of Appeals Denies Spousal Support, Attorney Fee Changes

On February 10th, 2015, the Michigan Court of Appeals held in a divorce case that defendant-wife failed to carry her burden in both the trial court and the Court of Appeals in proving that she was entitled under the law to a modification of spousal support and an award of attorney and expert witness fees.

In Loutts v. Loutts, Docket No. 318468, the Michigan Court of Appeals addressed the issues of

1) whether the trial court erred in its award of spousal support to defendant-wife, and 

2) whether the trial court erred in not awarding attorney or expert witness fees to defendant-wife.

The Court first recited the facts of the case.

The parties are Russian immigrants who were married in 1988 and came to the United States a few years later. They have one adult son. In 2000, plaintiff Georgii (referred to as George) Loutts started QPhotonics, a business that buys, sells, imports and exports light emitting diodes and laser diodes. He has a Ph.D in Materials Science earned in 1990 from General Physics Institute in Moscow, and worked as a physics professor at Norfolk State University in Virginia until the parties moved to Ann Arbor in 2007.

Defendant has a Ph.D in International Studies, earned in 2004 from Old Dominion University in Norfolk, Virginia, and a Master’s degree in Economics from Moscow State University in Moscow. Defendant had earned $14,000 per year as an adjunct professor at Old Dominion, and was hired as bookkeeper/accountant for QPhotonics at a salary of $2,000 per month after the parties moved to Ann Arbor. Near the time of the divorce in 2008, defendant was fired from the QPhotonics job.

Plaintiff filed for divorce in December 2008. Following a bench trial, the parties’ divorce judgment was entered on March 15, 2010. The trial court found that permanent spousal support was not appropriate “because both parties have PhDs, are in good health, and are clearly employable.” However, plaintiff was required to pay defendant rehabilitative spousal support in the amount of $1,510 per month for a period of four years. Plaintiff was awarded the marital home, and defendant was ordered to vacate the home before April 1, 2010, which she did. The trial court determined the value of QPhotonics to be $280,000 and awarded the business to plaintiff, and half of its value, $140,000, to defendant. The rest of the property was split approximately equally with plaintiff being ordered to pay defendant $247,788 as an equalizer. At trial, defendant had indicated some intent to develop a business similar to QPhotonics. Consequently, in the divorce judgment, the trial court ordered that defendant was restrained for three years from competing in any way with QPhotonics. Because both parties requested to be awarded the company and issue a noncompete restriction against the other spouse, this Court upheld the restriction. Loutts, 298 Mich App at 36.

Following the judgment of divorce, defendant appealed to this Court which remanded to the trial court to (1) address and decide defendant’s request for attorney and expert fees under MCR 3.206(C)(2)(a), (2) redetermine spousal support, including whether the equities in the case warrant utilizing the value of QPhotonics for purposes of both property division and spousal support, and (3) recalculate spousal support, imputing to defendant an income of $34,000. Loutts v Loutts, 298 Mich App 21, 25, 31, 34; 826 NW2d 152 (2012).

Nine months after this Court’s remand decision, defendant filed a “Motion to Recalculate Spousal Support, Modify Spousal Support, and Extend It; and For Attorney Fees and Expert Witness Fees.” Defendant requested that the trial court hold an evidentiary hearing on spousal support, attorney fees, and expert witness fees, and that it modify and extend her spousal support based on her continuing need for support and plaintiff’s ability to pay. Defendant argued that her health had deteriorated substantially. Specifically, she alleged that she suffered from bleeding stomach ulcers that led to hospitalization a few times, the first occurring in March 2012. Nevertheless, defendant asserted that she continued to look for work. However, she alleged that she was unable to obtain suitable employment because she was over-qualified for the few jobs that existed in her geographical area, and that Michigan’s declining economy made it near impossible to find work.

Based on the extensive nature of the file, the trial court determined that an evidentiary hearing was not necessary and declined defendant’s request for one. The trial court dispensed with oral argument and decided the matter based on the parties’ written submissions pursuant to MCR 2.119(E)(3). The trial court stated that rehabilitative spousal support had been ordered at $1,510 per month retroactive to April 23, 2009, and that it terminated on April 23, 2013. Despite defendant claiming that her health problems began prior to September 2012, the trial court noted that she waited until June 14, 2013 to request to modify and extend spousal support. The trial court noted that the spousal support terminated before the request to modify and extend was made, despite the fact that the alleged change of circumstance occurred nearly one year prior to the termination. Accordingly, the trial court held that any request for a modification or extension of spousal support must occur before the termination of the duty to pay. The trial court acknowledged that MCL 552.28 authorizes the modification of alimony on a showing of changed circumstances, but noted that defendant’s reading of the rule allows a party to “come back five, ten or even 20 years later to request a modification of spousal support because of a ‘change of circumstance,’ ” which in the trial court’s opinion is unreasonable. Therefore, the trial court denied defendant’s request to modify and extend spousal support. The trial court did, however, recalculate the spousal support using $34,000 as defendant’s income. This increased defendant’s monthly spousal support to $1,790, for a total of $85,920 over four years, which was $13,440 more than the original award.

With regard to the remaining issues raised in defendant’s motion, as well as this Court’s remand directives, the trial court took them under advisement and addressed them in the September 13, 2013 order. The trial court determined that the equities in this case did not warrant using the value of QPhotonics for purposes of both property division and spousal support, and that defendant’s request for attorney and expert witness fees was without merit. Consequently, this appeal ensued.

The Court's analysis of whether the amount of spousal support awarded was appropriate followed.

. . . To modify a spousal support award, the moving party must show that there has been a change of circumstances since the judgment of divorce. Moore v Moore, 242 Mich App 652, 654; 619 NW2d 723 (2000). Defendant argued that her changed circumstances were her deteriorating health and her inability to find work based on Michigan’s declining economy. In its first order, although the trial court cited the fact that defendant’s motion was untimely, it also noted that it was reviewing all the documents and testimony and had the case under advisement as to the modification of spousal support. The court further noted that it was very specific in ordering rehabilitative support for four years and denying permanent spousal support. In its second order, it noted that defendant was clearly employable based on her education and professional experience at the time the divorce judgment was entered and referenced the expert testimony from the trial regarding her potential job prospects. The trial court made it clear in its two orders that in addition to determining that defendant’s motion was untimely, it was also relying on the reasons initially set forth in the divorce judgment as a basis for only awarding rehabilitative spousal support for four years.

Further, as the trial court noted in its first order, despite her claiming that her ulcers began in March 2012, defendant did not file her motion to modify or extend spousal support until June 2013, which certainly diminishes the urgency for further spousal support to address her alleged health issues. Moreover, except for the few hospitalizations that prevented her from working while she was in the hospital, defendant never asserted that her alleged medical issues hindered her ability to work. In fact, she stated that despite her ulcers, she continued to look for employment. Her main reason for seeking continued spousal support appears to be the fact that she could not obtain suitable employment due to the fact that she was overqualified for the jobs available in her geographical area and that Michigan’s economy was declining. However, she did not identify which jobs, if any, for which she applied and was turned down based on her qualifications. In fact, defendant did not provide evidence to support any of the allegations made in her motion to modify or extend spousal support. Thus, the record is clear that defendant did not sustain her burden to show a change of circumstances since the divorce judgment, and therefore, the trial court did not abuse its discretion by denying her motion to modify or extend spousal support.

Next, defendant argues that the trial court erred by determining that the equities in this case did not warrant utilizing the value of QPhotonics for purposes of both property division and spousal support. The trial court determined that the valuation of QPhotonics could be used for either property division or spousal support, but not both. However, this Court held that there is no bright-line rule. Loutts, 298 Mich App at 31. Rather, MCL 552.23(1), which governs spousal support, favors a case-by-case approach. Loutts, 298 Mich App at 29. This Court stated that a trial court’s decision to award spousal support “should reflect what is just and reasonable under the circumstances of the case.” Id. at 30 (quotation marks and citations omitted). Because the trial court applied a bright-line rule and did not consider the specific facts and circumstances of the case, this Court directed the trial court on remand to redetermine spousal support by deciding whether the equities in this case warrant utilizing the value of QPhotonics for purposes of both property division and spousal support. Id. at 31.

On remand, the trial court thoroughly discussed its decision to use the value of QPhotonics for the purpose of property division, but not spousal support. The trial court relied on plaintiff’s expert who stated that “where a business is valued on the present value of the future income to the owner, some of the earnings/profits are considered as payment for labor (reasonable compensation) and the remaining profits (excess compensation) are reduced to present value and multiplied by a factor to yield a business value.” The trial court stated, “If this excess compensation is considered in awarding spousal support, then it could be argued that the Court would be awarding the same dollars twice.” Further, the trial court cited defendant’s extensive bad behavior during the proceedings, including numerous unsubstantiated allegations she made against plaintiff, and the fact that she did receive half the value of the business, that resulted from plaintiff’s own labors. The court further noted that defendant had extensive knowledge of QPhotonics and could easily establish a competing business that would “create havoc for,” and significantly reduce the value of, QPhotonics. Therefore, contrary to defendant’s argument, the trial court did as directed by this Court and considered the equities of this case and what was just and reasonable under the circumstances, to determine that the value of the business would only be used for the purposes of property division. We conclude that the record supports the trial court’s factual findings, and its decision is within the range of reasonable and principled outcomes.

The Court then addressed whether defendant-wife was entitled to an award of attorney and expert witness fees.

. . . In this case, the trial court concluded that defendant failed to carry her burden of proof that she was unable to bear the expense of the litigation. The trial court cited the fact that defendant received a cash equalizer payment of $247,788, rehabilitative spousal support for four years, and $50,000 early in the litigation as an advance against the property settlement. These findings are not clearly erroneous, particularly where the record shows that defendant received approximately $310,000 in cash from the divorce, which included a cash equalizer payment of $247,788 and a distribution of $62,630.50 from plaintiff’s retirement account, as well as $1,510 in monthly spousal support for four years. Defendant did not show that she would have to invade the spousal support assets that she is relying on to live to pay her attorney fees and costs. See Myland, 290 Mich App at 702-703.

Further, this Court has interpreted MCR 3.206(C)(2)(a) to require attorney fees “only as necessary to enable a party to prosecute or defend an action.” Gates, 256 Mich App at 438. The trial court cited the fact that a substantial amount of the fees and costs incurred by defendant were due her own conduct in pursuing unsubstantiated claims. The trial court stated that defendant participated in a “clear fishing expedition” that was without merit. Therefore, according to the trial court decision, it is clear that defendant incurred substantial fees and costs that were not necessary to defend the divorce action. We conclude that the trial court properly gave special consideration to the equities involved in this case when declining to award defendant attorney fees and costs, see Myland, 290 Mich App at 703, and therefore, it did not abuse its discretion.

Affirmed.