May a third party be joined to a divorce action?

Divorce Action

Anderson v. Sanchez (Nev. Ct. App. – July 23, 2015)

This case involves the enforceability of a divorce settlement agreement in the face of a claim that the agreement distributes property belonging to a third party. The issue is whether the district court erred in denying a party’s motion to set aside the parties’ settlement agreement, and join his sister to the underlying divorce proceeding, because she claimed an interest in property that was treated as community property in the settlement agreement.

This case arose out of a divorce between Mark and Sophia. Mark filed a complaint for divorce in March 2012. Thereafter, the parties immediately agreed to participate in mediation before retired district court judge Robert Gaston, but not pursuant to a court order or district court rule, which can be used to set the parameters of the mediation. At the conclusion of the mediation, the parties executed a written Memorandum of Understanding (MOU), which provided the framework for dividing their various assets and debts. The award of the Wilson property, a residence located on East Wilson Avenue, Orange, California, was the only term of the MOU challenged on appeal. Under the terms of the MOU, Mark was to receive the Wilson property in exchange for the payment of a portion of his retirement funds to Sophia.

After the parties executed the MOU, Mark filed a notice of withdrawal of his signature, stating, without any explanation or citation to law, that he was revoking his signature from the MOU. In response, Sophia filed a motion to enforce the MOU, asserting that the parties had entered into a legally binding contract and requesting that the district court enter a divorce decree based on the terms of the MOU. Mark then filed, among other things, an opposition to the motion to enforce, a countermotion to set aside and deem the MOU unenforceable, and a countermotion for joinder of his sister, Cheryl. Cheryl also filed a motion to intervene in the divorce proceeding based on the same factual allegations set forth in Mark’s opposition and countermotion regarding joinder, and she asked for a finding and order that the Wilson property was held in constructive trust, declaratory relief, an injunction, and attorney fees.

In his opposition and countermotions, Mark argued that the MOU was void because it improperly distributed property that did not belong to Mark and Sophia. Further, Mark argued the MOU was subject to rescission because it was based on a mutual mistake, a misrepresentation, or unconscionable terms. In support of these arguments, Mark alleged Cheryl had an ownership interest in the Wilson property, which he and Cheryl had received as beneficiaries of the Jack and Lavonne Trust, which previously held that property. Mark claimed he and Cheryl had agreed Cheryl would keep the Wilson property in exchange for Mark receiving other trust assets. Cheryl currently lives on the Wilson property.

Continuing his arguments in support of joinder and setting aside the MOU, Mark alleged that, between May 2005 and May 2006, he and Sophia entered into two agreements with Cheryl in which Cheryl allowed them to use the Wilson property as collateral to secure loans. In order to obtain financing, the second agreement required Mark and Cheryl, as trustees of the Jack and Lavonne Trust, to convey the Wilson property to Mark and Sophia. Mark and Sophia then transferred the Wilson property to their own newly created trust, the Anderson Trust. The Anderson Trust provided that the Wilson property was to be conveyed to Cheryl should she survive both Mark and Sophia. Additionally, David, Cheryl’s son, was named as a beneficiary of the Anderson Trust, should he survive Cheryl, Mark, and Sophia. The Anderson Trust was not made a party in this case. None of Mark and Sophia’s five other properties are held in a trust.

Mark contended he and Sophia entered into an oral agreement with Cheryl whereby he and Sophia would transfer the Wilson property to Cheryl after all loans were satisfied. Until such time, however, Mark and Sophia would hold the Wilson property in the trust for Cheryl’s benefit. Thus, in his opposition and countermotions, Mark argued the agreement created a resulting trust or a constructive trust for Cheryl’s benefit.

Mark filed several statements in district court by individuals familiar with the arrangement to prove the oral agreements. These included an affidavit signed by Mark and Sophia’s accountant, who provided a loan collateralized by the Wilson property; a letter signed by the trust attorney who drafted the Anderson Trust, which recited his understanding that the property was held in Mark’s name, but was actually owned by Cheryl; a notarized statement signed by Israel, Sophia’s brother, which outlined his understanding of Mark and Sophia’s arrangement with Cheryl, consistent with Mark’s contentions; and the Anderson Trust agreement, which held the Wilson property at the time of divorce and which provided that the Wilson property would go to Cheryl free of encumbrances following the deaths of both Sophia and Mark if she survived them. Based on his contention that Cheryl was the true owner of the Wilson property, Mark maintained that Cheryl must be joined to the action pursuant to the provisions of NRCP 19(a).

Sophia filed a reply in support of her motion to enforce the settlement agreement and an opposition to Mark’s countermotions. She denied the existence of an agreement between herself, Mark, and Cheryl, referring to the alleged agreement as a secret deal between Mark and his sister. Sophia contended she and Mark were the rightful owners of the Wilson property, as they, not Cheryl, paid the mortgage and property taxes on the Wilson property and because a quitclaim deed released the property to Mark and Sophia forever.

The district court held two hearings on the various motions. In rendering its decisions, the district court stated at the hearings, “I don’t know how Cheryl would—could become a party in this case. We’re talking about a piece of property in California, so we don’t—we don’t have jurisdiction over a property in California. She’s not a party to this proceeding. This is a divorce.” Second, the district court stated, “[a] settlement was reached. . .. It was placed in writing. And now what I hear is that somehow that—that really there was this constructive trust regarding this California property that [i]s the problem. Those facts were known to [Mark]. Those facts were known to [Sophia].” Third, the district court emphasized the importance that “[Mark and Sophia are] legal owners of the property.”

After the second hearing, the district court issued an order that (1) granted Sophia’s motion to enforce the MOU, (2) denied all of Mark’s countermotions, and (3) denied Cheryl’s motion to intervene and related motions. In addition to concluding the MOU was a valid and binding agreement, the district court found that Cheryl lacked standing to intervene and that the court lacked jurisdiction to allow her to intervene. The court also entered a decree of divorce dissolving Mark and Sophia’s marriage and incorporating the MOU. Mark appealed.

Mark maintained that the arrangement with Cheryl created an implied trust for Cheryl’s benefit. Therefore, he asserted that when he and Sophia divided the Wilson property as part of their community property, they mistakenly included property that belonged to Cheryl. Thus, Mark contended that the MOU should be set aside as to that provision and the matter should be remanded to the district court for further proceedings in which Cheryl’s interest in the Wilson property is determined. Sophia disagreed, arguing that the parties entered into an enforceable settlement agreement and that joinder of Cheryl was not required.

Joinder of necessary parties

There are three types of circumstances in which an absent party is necessary under NRCP 19(a): (1) an individual must be joined if the failure to join will prevent the existing parties from obtaining complete relief; (2) an individual must be joined if an interest is claimed in the subject matter of the action and adjudication of the action in the individual’s absence may inhibit the individual’s ability to protect that claimed interest; and (3) an individual must be joined if the person claims an interest in the subject matter of the action and adjudication of the action in the individual’s absence subjects an existing party to a substantial risk of incurring double, multiple, or otherwise inconsistent obligations.

The Nevada Court of Appeals noted that without addressing whether this case presented any of the circumstances set forth in NRCP 19(a), the district court declined to join Cheryl, apparently based on two preliminary conclusions—that the court lacked jurisdiction to determine Cheryl’s rights in property located in another state and that an outside party could not be joined to a divorce action.

Jurisdiction over the Wilson property

Although the district court failed to make specific factual findings, its oral comments indicated that it concluded it lacked jurisdiction to adjudicate the ownership rights to the Wilson property because the property was located outside of Nevada.

In Buaas v. Buaas, 62 Nev. 232, 147 P.2d 495 (1944), the Nevada Supreme Court held that, although the lower court could not render a judgment in rem over the California property, it could pass indirectly upon the title via its jurisdiction over the parties.

The Nevada Court of Appeals explained that Mark and Sophia were properly before the district court in their divorce proceeding and included the Wilson property among the assets to be divided. Further, Cheryl submitted to the district court’s jurisdiction by filing a motion to intervene in the divorce proceeding. Thus, although the Wilson property was located in California, the district court could have adjudicated the parties’ rights to the property based on its personal jurisdiction over all of the parties purporting to have an interest in the property. Consequently, the Court found that the district court erred in concluding it lacked jurisdiction to consider Cheryl’s interest in the Wilson property based on the property’s location.

Joinder in a divorce action

The Court explained that nothing in NRCP 19(a) limits the type of civil action to which a necessary party must be joined. Although the Nevada Supreme Court has not specifically addressed whether a third party may be joined to a divorce action, that court has held that joinder was required in certain post-divorce proceedings. Thus, the Court reasoned that Nevada case law supports the possibility that an absent third party may be joined to a family law action in certain circumstances.

Moreover, the Court explained that courts in other jurisdictions have concluded that a third party may be joined to a divorce proceeding when such joinder is necessary to resolve disputes as to property rights.

Thus, considering the extrajurisdictional authority in light of the Nevada Supreme Court cases indicating that joinder may be proper in family law cases, the Court concluded that a third person may be joined to a divorce action when that person claims an interest in property that is purported to be part of the marital estate. As a result, the Court found that the district court erred to the extent that it apparently found that Cheryl could not be joined because the underlying action was a divorce action.

Necessary Party

The Court explained that in some cases, such as this one, the parties may dispute the extent of their interest in the property, putting ownership of the property at issue in the divorce proceeding. In that situation, a third party who claims an interest in the property generally may be joined to the action and the action will be binding on that party. Conversely, any third party not joined will not be bound by the determination of ownership in the divorce action.

Here, insofar as Cheryl will not be bound by the action if she is not joined, the Court believed it did not appear that her ability to protect her claimed interest in the Wilson property would be impaired or impeded, as she would be able to file a separate action to enforce her claimed interest.

As a result, the Court explained that Cheryl did not appear to be a necessary party under NRCP 19(a)(2)(i), which requires joinder when a third party claims an interest in the subject matter of the action and the third party’s absence from the litigation may impair or impede the person’s ability to protect that interest. But, that ability to file a separate action raised questions as to whether, in Cheryl’s absence, the existing parties would be able to obtain complete relief, and whether the failure to join Cheryl may leave Mark subject to a substantial risk of incurring double, multiple, or otherwise inconsistent obligations, and thus, whether Cheryl may be a necessary party under NRCP 19(a)(1) or NRCP 19(a)(2)(ii).

The Court explained that because the district court erroneously determined that it did not have authority to join Cheryl based on the location of the Wilson property and the nature of the action as a divorce proceeding, the court failed to consider whether complete relief could be afforded among the parties in Cheryl’s absence, or whether Cheryl’s absence might leave any of the existing parties subject to a substantial risk of double, multiple, or otherwise inconsistent obligations. But, insofar as Cheryl may seek relief in another jurisdiction with regard to the Wilson property, it appeared reasonably possible that her absence may cause any relief afforded in the district court to be incomplete, or may leave Mark subject to a potential risk of multiple, double, or inconsistent obligations.

Determining the potential effect of any litigation by Cheryl may require the resolution of factual issues. Therefore, the Court reversed the district court’s denial of joinder and remanded this case to the district court for that court to consider whether Cheryl was a necessary party within the meaning of NRCP 19(a).

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