FT - Itasca County Health & H.S. v. Luthen (10/23/2001)

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Itasca County Health and Human Services v. Luthen
2001.MN.0001356 (Minn.App. 10/23/2001)

STATE OF MINNESOTA IN COURT OF APPEALS

No. C5-01-140

2001.MN.0001356

October 23, 2001

IN RE: LINDA G. LONGRIE, PETITIONER, APPELLANT,

ITASCA COUNTY HEALTH AND HUMAN SERVICES, INTERVENOR,

v.

RICHY J. LUTHEN, RESPONDENT.

Itasca County District Court File No. FX9850295

Ellen E. Tholen, 525 East Itasca Street, Grand Rapids, MN 55744 (for appellant) James Perunovich,
402 East Howard Street, Suite 7, Hibbing, MN 55746 (for respondent)

Considered and decided by Peterson, Presiding Judge, Amundson, Judge, and Anderson, Judge.

The opinion of the court was delivered by: Peterson, Judge

Affirmed in part, reversed in part, and remanded

UNPUBLISHED OPINION

In this appeal from a child support magistrate's order and supplemental order, appellant-mother
Linda G. Longrie argues that the magistrate should not have collaterally estopped her from
introducing evidence that respondent-father Ricky J. Luthen fraudulently transferred assets
during his marital dissolution proceeding and acted in bad faith to avoid establishing a child
support obligation consistent with his earning ability and past income. We affirm in part,
reverse in part, and remand.

FACTS

Appellant and respondent had an extramarital relationship that resulted in the birth of a child,
T.L., on September 10, 1997. In March 1998, appellant initiated a paternity action against
respondent, and in July 1998, respondent's exwife, Peggy Luthen, filed a marital dissolution
action in Itasca County. In August 1998, respondent was adjudicated the father of T.L., and child
support was reserved. Appellant and Itasca County Health and Human Services then moved to
intervene in the Itasca County dissolution action, and the district court granted the motions.
Peggy Luthen appealed the order permitting intervention, and in Luthen v. Luthen, 596 N.W.2d 278
(Minn. App. 1999), this court reversed, holding that appellant and the county could not intervene.

Peggy Luthen dismissed her marital dissolution action in Itasca County and began a new
dissolution action in St. Louis County. In that action, the Luthens stipulated to a division of
assets that was approved by the district court in an October 5, 1999, judgment. Pursuant to the
judgment, Peggy Luthen received three parcels of real estate, a business called Performance
Sports Center, L.L.C., respondent's non-marital L&M Supply Company stock, and a vehicle.
Respondent received a business called Lone Pine Enterprises, L.L.C., several vehicles, and a boat.

A hearing to set child support in the paternity action was scheduled for October 1999, but due to
discovery problems, the hearing was continued to February 2000. At the February hearing,
respondent moved to have the matter heard by a child support magistrate, and the motion was
granted. Following a hearing, a child support magistrate issued an order on May 15, 2000.
Appellant moved for review of the magistrate's order by the district court and following review,
the district court remanded the matter to the child support magistrate. The magistrate reviewed
the record and issued a supplemental order on November 16, 2000.

This appeal is taken from the magistrate's original order and the supplemental order.

DECISION

Appellant argues that the magistrate erroneously applied the doctrine of collateral estoppel to
her claims of a fraudulent transfer and her allegations that respondent operated in bad faith to
avoid a child support obligation consistent with his earning ability and his past income. The
magistrate did not apply the doctrine of collateral estoppel to any of appellant's claims.
Rather, the magistrate refused to allow a collateral attack on the Luthens' dissolution judgment.
After explaining that he understood that an Itasca County judge had found that respondent's past
income is relevant to these proceedings, the magistrate stated:

[B]ut I'm not going to allow a collateral attack on the dissolution decree. I think this case
and—so counsel know how I'm viewing it—i[s] really a question of what Mr. Luthen's
actual income is and of course, whether income could be imputed to him based on his earning
history.

The magistrate later explained:

So, I've just been cautioning counsel at this point that I don't want a lot of evidence on the
collateral attack on the dissolution decree.

The magistrate's statements indicate that the magistrate correctly understood that this child
support proceeding could not be used to alter the dissolution judgment.

An action with an independent purpose and contemplative of another form of relief that depends on
the overruling of a prior judgment is a collateral attack. It is well-settled in Minnesota that a
facially valid judgment is not subject to collateral attack. Popp Telcom v. Am. Sharecom, Inc.,
210 F.3d 928, 941 (8th Cir. 2000) (citations omitted).

But appellant argues that her effort to admit evidence about the dissolution judgment was not a
collateral attack on the judgment because she was not trying to have the dissolution judgment
overruled. Instead, she contends, she was attempting to show that respondent used his divorce
settlement to transfer all of his income-producing property to Peggy Luthen in order to avoid
having the income generated by the property considered when his support obligation for T.L. was
set. Appellant claims that respondent's conduct was a bad-faith attempt to self-limit his income
for purposes of setting his child support obligation and that the magistrate erred by not
admitting evidence about the circumstances of respondent's marital dissolution, which appellant
contends would prove her claim.

Absent an erroneous interpretation of the law, whether to admit or exclude evidence is within the
district court's discretion. Kroning v. State Farm Auto. Ins. Co., 567 N.W.2d 42, 45-46 (Minn.
1997); see Brazinsky v. Brazinsky, 610 N.W.2d 707, 710 (Minn. App. 2000) (this court applies the
same standard of review to an order issued by a child support magistrate as it would to a child
support order issued by a district court). The evidence excluded during the hearing before the
magistrate generally fell into two categories: (1) evidence about the Luthen dissolution
settlement, and (2) evidence about respondent's intent when he agreed to award most of the
marital assets to Peggy Luthen and to become an employee earning ten dollars per hour working for
a company that was awarded to Peggy Luthen.

The magistrate did not admit evidence in the first category because it was repetitious. Because
the Luthens' settlement agreement was set forth in detail in the dissolution judgment, there was
no need for additional evidence about the property transfers required by the judgment. The
dissolution judgment satisfactorily proved which assets respondent agreed to transfer to Peggy
Luthen. The magistrate did not abuse his discretion when he declined to admit additional evidence
about the dissolution settlement.

The magistrate did not admit evidence in the second category because he concluded that the
evidence was irrelevant. The excluded evidence was testimony about the reasons for the
dissolution, the reasons why respondent agreed to a property settlement that gave Peggy Luthen
most of the income-producing assets, and the reasons why the dissolution proceeding began shortly
after appellant initiated the child support proceeding.

The magistrate did not explain why he concluded that the evidence was not relevant, but it
appears that this conclusion was based at least in part upon the magistrate's understanding that
the dissolution property settlement was final and could not be altered in the child support
proceeding. When appellant's counsel asked about respondent's intent with respect to the
dissolution settlement, respondent's counsel stated a relevancy objection and argued that counsel
was collaterally attacking the dissolution judgment. The magistrate sustained the objection.

In a child support proceeding, earning capacity is an appropriate measure of income if an
obligor's actual income is unjustifiably self-limited. County of Morrison ex rel. Gutzman v.
Watland, 448 N.W.2d 71, 74 (Minn. App. 1989). Appellant argues that by entering into the
dissolution settlement agreement, respondent unjustifiably limited his income in two ways. First,
respondent limited his earned income when he transferred Performance Sports Center to Peggy
Luthen and became an employee of the business that he had owned and operated during the marriage.
Second, respondent limited his unearned income when he transferred his L&M Supply Company stock
to Peggy Luthen and as a result, no longer received income from the stock.

Although the child support magistrate correctly recognized that the Luthens' dissolution judgment
could not be collaterally attacked in this child support proceeding, the magistrate applied the
prohibition against a collateral attack too broadly.*fn1 Appellant's theory before the magistrate
was that respondent used his divorce settlement to transfer all of his income-producing property
to Peggy Luthen in order to avoid having the income generated by the property considered when his
support obligation for T.L. was set. Appellant's effort to present evidence about the
circumstances of the dissolution settlement was not an attempt to alter the dissolution judgment;
it was an attempt to show that respondent unjustifiably used the settlement to reduce his current
income, and therefore, that respondent's actual income should not be used to determine his child
support obligation.

We see no basis for concluding that because respondent's dissolution settlement agreement has
been incorporated into a judgment, respondent's intent when entering the agreement is not
relevant to determining whether respondent has unjustifiably self-limited his income. Even if
respondent is bound by the judgment, his situation is not different from any other child support
obligor who has quit a job or taken some other irreversible step that reduced the obligor's
income. If such steps are taken to limit the obligor's child support obligation, the obligor's
child support may be based on earning capacity rather than actual income.

Because the child support magistrate did not admit evidence that is relevant to a determination
whether respondent unjustifiably self-limited his income, we reverse and remand to permit
appellant to present evidence and to permit the magistrate to make a factual determination
whether respondent unjustifiably self-limited his income. This opinion should not be interpreted
as an indication of how this factual issue should be resolved.

Appellant argues that the magistrate abused his discretion when he found that Peggy Luthen owed
$500,000 in past taxes. The standard of review for this finding of fact, however, is whether it
is clearly erroneous; it is not whether the magistrate abused his discretion. See Minn. R. Civ.
P. 52.01 (findings of fact not set aside unless clearly erroneous). The magistrate found:

1. At Finding of Fact No. 10, the Magistrate found that [respondent] and his ex-wife, Peggy
Luthen, owed tax liabilities in excess of $500,000.00. A review of the record shows liabilities
of $150,998.00 for the 1996 tax reporting period, $70,793.12 for the 1997 tax period, these two
liabilities being owed to the Internal Revenue Service. In addition, Peggy Luthen paid $65,958.08
to the Internal Revenue Service for the 1995 tax period, for a total of $287,749.20.

2. [Respondent] and Peggy Luthen owe additional tax liabilities to the Minnesota Department of
Revenue in the amount of $37,334.12 for tax year 1995, $35,193.20 for tax year 1996, and
$61,871.85 for the tax year 1997, for a total of $134,399.17.

3. Both the Federal and State outstanding tax liabilities in the amount of $422,148.37 continue
to accrue penalties and interest at the statutory rate. The above-referenced Federal assessments
were as of July and August 1999, and the State assessments were as of July 1999. Almost one year
had passed since the last evidence of these assessments and under statutory penalty and interest
provisions, Peggy Luthen would owe approximately $500,000.00 in tax liabilities to the Federal
and State taxing authorities.

The record contains copies of notices from the Internal Revenue Service and the Minnesota
Department of Revenue that support these findings of fact. The findings are not clearly erroneous.

Affirmed in part, reversed in part, and remanded.


Opinion Footnotes

*fn1 The magistrate's broad application of the prohibition against a collateral
attack might have been prompted by this court's opinion in Luthen, which strongly
stated that although children have a right to child support, they do not have a
right to marital property. Luthen v. Luthen, 596 N.W.2d 278, 281-82 (Minn. App.
1999). We understand any concern the magistrate might have had that admitting
evidence of the dissolution would permit appellant to do in this action what she
was prohibited from doing in the dissolution action. But this court emphasized in
Luthen that respondent's child support obligation would be adjudicated under Minn.
Stat. ch. 518, and appellant would be entitled to an equitable amount of child
support from respondent. Id. at 281. Determining whether respondent unjustifiably
self-limited his income is one step in establishing an equitable amount of child
support under chapter 518.