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You can search the entire site. or go to the recent opinions, or the chronological or subject indices. Frost v. Spencer (10/16/2009) sp-6425
Notice: This opinion is subject to correction before
publication in the Pacific Reporter. Readers are
requested to bring errors to the attention of the Clerk
of the Appellate Courts, 303 K Street, Anchorage,
Alaska 99501, phone (907) 264-0608, fax (907) 264-0878,
e-mail corrections@appellate.courts.state.ak.us.
THE SUPREME COURT OF THE STATE OF ALASKA
| CATHY M. FROST, | ) |
| ) Supreme Court Nos. S- 12577/12587 | |
| Appellant/Cross-Appellee, | ) |
| ) Superior Court No. 3AN-05- 5283 CI | |
| v. | ) |
| ) O P I N I O N | |
| JOHN S. SPENCER, | ) |
| ) No. 6425 October 16, 2009 | |
| Appellee/Cross-Appellant. | ) |
| ) | |
Appeal from the Superior Court of the State
of Alaska, Third Judicial District,
Anchorage, Sharon L. Gleason, Judge.
Appearances: Michael A. Grisham, Allen
Clendaniel, Dorsey & Whitney LLP, Anchorage,
for Appellant/Cross-Appellee. Robert C.
Erwin, Palmier ~ Erwin, LLC, Anchorage, for
Appellee/Cross-Appellant.
Before: Fabe, Chief Justice, Matthews,
Eastaugh, Carpeneti, and Winfree, Justices.
PER CURIAM
MATTHEWS, Justice, with whom FABE, Chief Justice,
joins, concurring.
EASTAUGH, Justice, concurring.
I. INTRODUCTION
Cathy Frost and John Spencer, friends who were at times
romantically involved, ran a business together from the late
1980s to the early 2000s. When their working relationship
deteriorated, Spencer sued for division of the partnership
property under the law of domestic relations. Frost agreed to a
dissolution of their business partnership under a framework for
the equitable distribution of assets and liabilities. But after
trial the superior court declared that it was bound instead to
resolve the case under partnership law. The court permitted the
parties to submit written responses to its ruling but declined to
hold another evidentiary hearing before issuing a final decision.
Frost appeals on several grounds. Because Frost should have had
the opportunity to present evidence after the court announced
that different law governed the case, we reverse the superior
courts denial of Frosts request for a supplemental evidentiary
hearing and remand for further proceedings.
II. FACTS AND PROCEEDINGS
Cathy Frost and John Spencer, friends since high
school, started a business together in 1988 or 1989. That
business, called Footloose Alaska, initially provided guided
hunting expeditions and then expanded to offer catered events,
including weddings. Frost and Spencer acquired real property in
Girdwood, the Raven Glacier Lodge, as a location to house clients
before flying them to remote areas for hunting trips and for use
as the site of their catered events. That property was titled in
Spencers name because of residual financial complications from a
prior business in which Frost had been a partner with her
deceased husband, but the parties agree that they purchased the
lodge together. Frost and Spencer also purchased Farewell Lake
Lodge from Frosts parents. The two partners had different roles
in running Footloose Alaska: Spencer did all the flying and bush
logistics and guiding, the carpentry, architectural work,
landscaping, aircraft repair and maintenance, and Frost did the
marketing, the food service, [and] the public relations. The
record does not indicate that they had a written partnership
agreement.
Before and at the beginning of the business
partnership, Frost and Spencer were sporadically romantically
involved. There is no evidence in the record, nor does either
party now assert, that they ever lived together.
By 2003 Frost and Spencer no longer had a functioning
professional relationship.1 In February 2005 Spencer filed a
complaint against Frost requesting a dissolution of the parties
partnership interests and a division of their jointly acquired
real and personal properties. The complaint stated that [i]n
1985, the parties entered into a personal relationship and during
the course of same, acquired, as partners, real property,
personalty and incurred certain indebtedness, but now [t]he
parties personal relationship has terminated. In response, the
superior court served the parties with a domestic relations
procedural order. The case proceeded as though it concerned a
domestic partnership, at first because the court apparently
thought Spencer had properly characterized it as such,2 and later
because the parties agreed to treat it as some kind of domestic
relations case even after the court recognized the error. That
agreement was explicit: during trial, Spencers attorney noted on
the record that he would not present evidence to prove that the
partnership was domestic because Frost had accepted that
classification in her amended trial brief; that brief expressly
adopts Spencers description of the matter by stating that Mr.
Spencer has asked for an equitable dissolution and Ms. Frost
agrees.3
In May 2006, after preliminary proceedings largely
regarding the liability insurance on and possession and
maintenance of Raven Glacier Lodge, the case went to trial. The
court informed the parties that each side would have three hours
and forty-five minutes total to present its case. As the case
progressed, the court clerk kept track of time, and at several
breaks the court reported to the parties how many of their
allotted minutes they had used. Frost made motions for more time
during and after the trial, which the superior court denied, and
at other points Frost and her attorney noted that the time was
insufficient to present all the evidence they wanted to put
before the court.
Spencer served as the main witness on his own behalf.
After answering preliminary questions about his personal
background, he described the acquisition and maintenance of
several planes that he believed were his property but Frost
argued were partnership assets. He answered questions about the
purchase of the real property Footloose Alaska used, as well as
loans he and Frost had received from the bank and family members
to begin the business. He also testified to small expenditures
he had made out of personal funds for the benefit of Footloose
Alaska. Frosts attorney asked Spencer on cross-examination about
his work for the business, tax refunds he received in years
Footloose Alaska lost money, and the status of the title to Raven
Glacier Lodge.
Spencers attorney called several additional witnesses.
Four appraisers testified to the values of Farewell Lake Lodge,
Raven Glacier Lodge, personalty at Raven Glacier Lodge, and
airplanes Spencer owned while Footloose Alaska was in operation.
David William Spencer, John Spencers younger brother, testified
that Spencer put significant effort into Footloose Alaska and
that David had made loans totaling approximately $15,000 to
Spencer and $25,000 to Footloose Alaska, none of which had been
repaid.
Frost also put on witnesses. A seasonal employee at
Raven Glacier Lodge testified about the amount of work Frost and
Spencer put into Footloose Alaska while he worked there,
describing the shifting focus of the business toward weddings
rather than guiding hunts, as well as Spencers decreasing
involvement in the early 2000s. Frosts mother took the stand to
state that she and her husband had sold Farewell Lake Lodge to
Frost and Spencer at a $270,000 discount and they considered that
amount part of their daughters inheritance. Frost also
testified; she described financial benefits Spencer received from
Footloose Alaska, such as money for repairs to his planes, and
claimed to have invested her Permanent Fund Dividends into
Footloose Alaska. She also talked about Spencers decreasing
involvement in the business. Her direct examination ended,
though she stated that we have more witnesses and theres so much
I havent been able to say, because her attorney decided to
reserve the remaining ten minutes the court allotted to make a
closing statement.
Frosts attorney argued in closing that the parties
behavior in particular, Spencers benefitting financially from
owning Footloose Alaska despite having ceased to contribute labor
and Frosts continuing to work tirelessly to host weddings at the
lodge indicated that their arrangement was for Frost to work
toward full ownership of Raven Glacier Lodge. Spencers attorney
spoke in closing about the values of the partnership property,
arguing that certain personalty did not belong to the
partnership, and about which party should retain possession of
each item on his list.
On June 9, 2006, the superior court informed the
parties that it would be reversible error to apply the law of
domestic partnership to the case. The court noted it was
undisputed these two parties did not live together. The superior
court stated that the presumption under Alaska law is that assets
acquired during a co-tenancy or a partnership are to be . . .
divided 50/50 in the absence of an indication of an agreement to
the contrary. Because the court was certainly provided with no
written agreement indicating any contrary intention between the
two parties and did not hear any testimony of either party that
there was something different intended with regard to the
acquisition of these assets, it decided to divide the partnership
assets equally. The court believed that the parties failure to
offer evidence of whats been contributed by each party to this
partnership financially, or to present any information regarding
capital accounts, reinforced its decision to divide the existing
assets. The court then recited which property it believed was
part of the business, stated the value of each partnership asset,
and calculated that Frost was to pay Spencer $483,1964 as an
equalization payment because the property of which she was to
retain ownership including the two lodges was more valuable
than what Spencer was to keep. This calculation did not accord
any reduction for the theory that . . . some component of the
value [of Farewell Lake Lodge] was inherited property to Ms.
Frost. The court told the parties that because it was
unexpectedly basing its decision on partnership law, this outcome
was tentative pending any written responses to the ruling they
chose to submit.
Frost filed an objection to the courts decision,
contesting the courts application of law, noting factual issues
about which the court had not heard sufficient evidence, and
requesting a supplemental evidentiary hearing. She argued that
partnership law provided for her purchase of Spencers interest in
the business at its value on the date of dissolution and that the
court had not determined that date. She further argued that the
law required establishing the value of each partners capital
contributions to the business rather than dividing the
partnership assets; thus, there were various relevant but
undeveloped facts, including personal loans Frost and Spencer
took to gather funds for the business and Frosts contribution of
her inheritance in the form of a discount in the purchase price
for Farewell Lake Lodge. Spencer filed a response, arguing that
the court needed only to find the assets and liabilities of the
partnership, which it did, and noting that defendant had ample
time pre-trial and during the trial to develop her case.
On July 12, 2006, the court made its previously
announced decision final. The court rejected Frosts objection
because neither party had established by a preponderance of the
evidence that there is anything different than a[n] equal
partnership with respect to capital accounts, and Frost had
failed to prove by a preponderance of the evidence that there was
a deflation in the purchase price of the Farewell Lake Lodge.5
Frost moved for both reconsideration of the judgment
and a new trial. The superior court denied both motions in
December 2006.
Both parties appealed.
III. STANDARD OF REVIEW
The dispositive issue in this appeal is whether the
superior court erred in denying Frosts request for a supplemental
evidentiary hearing. This is a question of law, which we review
de novo.6
IV. DISCUSSION
The Court Abused Its Discretion in Denying a Supplemental
Evidentiary Hearing.
Frost primarily argues in this appeal that the courts
decision to resolve this case based on business partnership law,
despite the parties explicit agreement and expectation that the
resolution would rest on domestic relations or domestic
partnership law, violated her right to due process under the
Alaska Constitution.7 She contends that the courts post-trial
decision to apply a different body of substantive law than she
anticipated meant that different evidence would be significant to
the outcome of the case. She also argues that the superior
courts refusal to extend her trial time or to grant a new trial
violated due process because the strict time limits at trial,
considered in light of the additional evidence made significant
by the application of partnership law, prevented her from
presenting relevant information to the court. Spencer responds
that Frost was on notice that the court had before it the issue
of what law applied. He also notes that he was subject to the
same time limitations Frost faced at trial and argues that the
court appropriately used its discretion in controlling the
presentation of evidence.
Subsumed within Frosts due process claim is a claim
that the superior court abused its discretion by applying unfair
procedures. In recognition of our practice of reaching
constitutional issues only when a case cannot be fairly decided
on other grounds, we resolve this case on abuse of discretion
rather than due process grounds.8
Basic procedural fairness requires notice and an
opportunity for a hearing that is appropriate in light of the
nature of the case.9 A hearing is necessary to give the parties
an opportunity to present the quantum of evidence needed [for the
court] to make an informed and principled determination.10
Although these principles are elements of procedural due process,
the non-constitutional abuse of discretion standard also
encompasses them.11
It is clear from the record that the parties had agreed
to resolve the case under domestic relations or domestic
partnership law. The superior court allowed for written
responses precisely because the parties have looked at this and
applied the law of domestic cohabitants. Though the parties were
permitted to and did submit written arguments before the court
issued a final decision in the case, the court did not hold an
additional evidentiary hearing after the courts announcement of
its tentative ruling. Because basic fairness requires an
opportunity to present relevant evidence, applying an
unanticipated body of law could be an abuse of discretion if
doing so were to make different outcome-determinative facts
relevant. To assess Frosts abuse of discretion claim, then, we
inquire whether the courts application of business partnership
law would, if announced at the outset of the trial, have
reasonably led Frost to present different evidence or to place
more emphasis on some of the evidence that she did present.
The laws of domestic partnership and business
partnership are distinct. We decided in Tolan v. Kimball12 that
when a court oversees the separation of a nonmarried couple, to
the extent it is ascertainable, intent of the parties should
control the distribution of property accumulated during the
course of cohabitation.13 In Tolan, we held that it was not error
for the superior court to determine that a former couple jointly
owned the home they had shared, even though only one name was on
the title, because both individuals had contributed to the down
payment for and subsequent mortgage payments on the house, as
well as to its physical upkeep.14 The evidence presented at trial
in the suit between Frost and Spencer regarding the purchase and
use of the real property and planes suggests that the parties
anticipated the court would apply analogous logic here.15
Different rules govern winding up the affairs of a
business partnership. In Frost and Spencers case, the superior
court apparently applied the now-repealed version of the Alaska
Uniform Partnership Act16 (AUPA) and neither party has argued to
this court that failing to apply the current version was error.
To be consistent with the proceedings below and because the
changes in the code do not impact the result here,17 we too rely
on the former statutory text. We note, however, that the
superior court should use the current AUPA upon issuing a new
ruling as required by this opinion.18 Winding up a partnership
involves liquidating assets to repay the partnerships debts and
then distributing remaining funds, if any, to the dissociating
partners according to the capital contributions and share of
profits or losses. Alaska Statute 32.05.330 described this
process:
When dissolution is caused in any way,
except in contravention of the partnership
agreement, each partner, as against the
copartners and all persons claiming through
them in respect of their interest in the
partnership, unless otherwise agreed, may
have the partnership property applied to
discharge its liabilities, and the surplus
applied to pay in cash the net amount owing
to the respective partners.[19]
The AUPA further commanded that liabilities were to be
discharged in the following order: (A) those owing to creditors
other than partners; (B) those owing to partners other than for
capital and profits; (C) those owing to partners in respect of
capital; (D) those owing to partners in respect of profits.20
These statements of law indicate that a court must find
different facts to manage the termination of a partnership than
it would to oversee the conclusion of a domestic relationship.
In particular, in a business partnership dissolution the amount
of each partners capital contribution is critical because
proceeds from the dissolution are applied to the return of
capital on a dollar-for-dollar basis before profits may be
distributed.21 Further, noncash contributions of personal
services may qualify as capital contributions.22 By contrast, the
precise amounts paid by each partner in a domestic partnership
may be of little relevance.23 Loans made by a partner to a
business partnership are likewise recovered on a dollar-for-
dollar basis before profits are distributed and payments to a
partner must be credited against distributions.24 Again, in the
dissolution of a domestic partnership loans and payments may have
little importance. In addition, if there are profits to
distribute in a business partnership dissolution, the
distribution of them must be according to the parties agreement
as to how profits should be shared.25 Thus, evidence as to the
parties agreement for sharing profits is critical in a business
partnership dissolution. But when the entity being dissolved is
a domestic partnership the court and the parties generally do not
focus on profits or what the parties said as to how they would be
shared. Finally, personal non-business items are seldom
considered business partnership property, whereas they readily
may be considered part of a domestic partnership.
Frost claims that if she had been given notice that
this case would be tried as a business partnership dissolution,
and if she had been given sufficient time, she would have
presented evidence bearing on the parties capital contributions,
advances, how profits were to be distributed, and the non-
business partnership nature of some of the property that the
court took into account. She states:
Had Ms. Frost been given proper notice
of the legal standards that the trial court
was going to apply to her case, however, she
would have been able to put on evidence of:
The specific nature of the original
partnership agreement with Spencer;
How the partnership agreement was
fundamentally amended when Ms. Frosts
wedding business began at Raven Glacier
Lodge;
Ms. Frosts capital contributions in the
form of foregoing her inheritance and in
the form of monies generated by her own
separate business activities;
The business purposes of various items
at the Raven Glacier Lodge (i.e. whether
they were for the purposes of the
partnership business or for separate
purposes);
Advances of partnership assets made to
Spencer.
In our view Frost has made a plausible showing that if
she had known before the trial that the case was to be decided
under business partnership law principles, her evidentiary
presentation would have been different. We conclude that the
court abused its discretion in refusing to grant her request for
an additional evidentiary hearing following the courts
announcement that the case would be decided under business
partnership principles.
On remand a supplemental evidentiary hearing should be
held. Both parties should be given sufficient time to present
evidence relevant to a business partnership dissolution
considering the size and value of the partnership and the
duration of its existence.
V. CONCLUSION
Because Frosts request for an additional evidentiary
hearing should have been granted, we VACATE the superior courts
judgment, including its findings of fact, and REMAND for further
evidentiary proceedings.
MATTHEWS, Justice, with whom FABE, Chief Justice, joins,
concurring.
I agree with todays per curiam opinion. But I would
hold that due process in addition to the abuse of discretion
standard required a supplemental evidentiary hearing. I doubt
that the principle that constitutional grounds should not be
reached when a case may be decided on non-constitutional grounds
should apply to this or other cases where the constitutional
grounds supply the standard on which the non-constitutional
grounds are based. Taken to extremes, application of the
principle would mean that there would never be constitutionally
based rulings where it could be said that the questioned conduct
also amounted to a non-constitutional error subsumed in the
constitutional standard.
EASTAUGH, Justice, concurring.
For all the reasons the per curiam opinion ably
discusses, I agree that a remand is necessary and that we do not
need to reach Frosts due process arguments.
But I write separately because in my view it was an
abuse of discretion not to grant Frosts Alaska Civil Rule 59(a)
motion for a new trial. There may not seem to be much difference
between a remand for a new trial and a remand for a further
evidentiary hearing. Either way, as the courts opinion
recognizes, the parties must have an adequate opportunity to
offer evidence relevant to the legal principles that control the
dispute. Perhaps it is only a matter of degree, but remanding
for a new trial, rather than for an additional evidentiary
hearing, helps emphasize that much of the evidence offered at the
first trial may be irrelevant at the second, and that the parties
will need to start over in marshaling and presenting the evidence
relevant to the business partnership law applicable to their
lawsuit. Remanding for an additional hearing might be taken as a
suggestion that a supplemental hearing will do. In light of the
rigorous time limits imposed on the parties at the first trial,
an evidentiary hearing that merely supplements the evidence
offered at the first trial may not give the parties enough time
to try their case adequately. I therefore prefer to resolve the
appeal in terms of the denial of Frosts motion for a new trial or
a partial new trial.
_______________________________
1 The parties offered different explanations for the
breakdown of their partnership: Spencer complained of being
denied information about bookings for events at Raven Glacier
Lodge, and as a result being unable to file tax returns for the
business, as well as being locked out of the lodge; Frost claimed
that Spencer stopped contributing services to the business and
denied deliberately locking him out.
2 Early in the proceedings, Spencers attorney told the
court that it was correct to resolve the case as though the
partnership were domestic, even claiming that the parties had
lived together.
Frost filed her answer pro se and appears to have
remained unrepresented until January 2006, almost a year after
Spencer filed his complaint.
3 Frosts brief also noted that [t]his is a partnership
dissolution and [t]he parties never cohabited and any romantic
entanglements ended long ago, but Frost did not object to
Spencers assertion that the brief accepted the application of
domestic relations law. Frosts attorney stated in closing
argument that [i]t appears that we are arguing that this is a
domestic partnership and referred by name to Tolan v. Kimball, 33
P.3d 1152 (Alaska 2001), a case describing the legal rule to
apply to divide the property of separating unmarried cohabitants.
4 The court later adjusted this amount to $475,927 and
added prejudgment interest in the amount of $6,992.
5 The court also rejected a motion Spencer had filed for
attorneys fees under Alaska Civil Rule 82, concluding that
neither party had prevailed.
6 Godfrey v. State, Dept of Cmty. & Econ. Dev., 175 P.3d
1198, 1201 (Alaska 2007) (citing Dominish v. State, Commercial
Fisheries Entry Commn, 907 P.2d 487, 492 (Alaska 1995)).
7 Frost also argues that it was an abuse of discretion to
limit her time to testify, that it was an abuse of discretion not
to grant a new trial at her request, and that some of the
superior courts findings of fact were clearly erroneous. Spencer
filed a cross-appeal, arguing that the court erred in refusing to
declare him the prevailing party and award him attorneys fees,
and that the superior court calculated prejudgment interest
beginning on the incorrect date. Because our holding that a
supplemental evidentiary should have been granted renders these
issues moot, we do not address them.
8 Alaska Trademark Shellfish, LLC v. State, 91 P.3d 953,
957 n.12 (Alaska 2004) (We have often recognized that appeals
ordinarily should not be decided on constitutional grounds when
narrower grounds are available.). See also State, Dept of Health
& Soc. Servs. v. Valley Hosp. Assn, Inc., 116 P.3d 580 (Alaska
2005) (recognizing our practice of reaching constitutional issues
only when the case cannot be fairly decided on statutory or other
grounds (citing Kenai Peninsula Fishermans Coop. Assn, Inc. v.
State, 628 P.2d 897, 908 (Alaska 1981))).
9 See, e.g., Price v. Eastham, 75 P.3d 1051, 1056 (Alaska
2003).
10 Id. at 1056 (quoting Walker v. Walker, 960 P.2d 620,
622 (Alaska 1998)) (alteration in Walker).
11 Not every abuse of discretion is a due process
violation. Having found that there was an abuse of discretion we
do not reach the question of whether the underlying conduct also
constituted a due process violation.
12 33 P.3d 1152 (Alaska 2001).
13 Id. at 1155 (citing Wood v. Collins, 812 P.2d 951, 956
(Alaska 1991)).
14 Id. at 1154-56.
15 Cf. Bishop v. Clark, 54 P.3d 804, 811 (Alaska 2002) (In
determining the intent of cohabiting parties, courts consider,
among other factors, whether the parties have (1) made joint
financial arrangements such as joint savings or checking
accounts, or jointly titled property; (2) filed joint tax
returns; (3) held themselves out as husband and wife; (4)
contributed to the payment of household expenses; (5) contributed
to the improvement and maintenance of the disputed property; and
(6) participated in a joint business venture. Whether they have
raised children together or incurred joint debts is also
important. (footnotes omitted)).
16 Former AS 32.05.010 et seq. (repealed 2000).
17 In particular, AS 32.06.807, [s]ettlement of accounts
and contributions among partners, and AS 32.06.401, [p]artners
rights and duties, include no substantive changes to partnership
law that would alter the outcome as it is explained below.
18 The repealed version of the AUPA was replaced by
AS 32.06.201 et seq., which appl[ies] to all partnerships and
limited liability partnerships as of January 1, 2004. Ch.
115, 10, SLA 2000. Because this suit began in 2005, it is clear
that the current AUPA applies here.
19 Former AS 32.05.330(a). The remainder of that statute
controlled wrongful dissolution, see former AS 32.05.330(b), but
neither party has claimed that the other breached their
partnership agreement. Another provision of the AUPA provided
more detail regarding the allocation of funds to partners:
[S]ubject to any agreement between
[partners], . . . (1) each partner shall be
repaid the partners contributions, whether by
way of capital or advances to the partnership
property, and shares equally in the profits
and surplus remaining after all liabilities,
including those to partners, are satisfied;
and, except as provided in AS 32.05.100(b),
shall contribute towards the losses, whether
of capital or otherwise, sustained by the
partnership according to the partners share
in the profits.
Former AS 32.05.130.
20 Former AS 32.05.350(2).
21 See id.
22 See Schymanski v. Conventz, 674 P.2d 281, 284 (Alaska
1983) (personal services may be capital contributions by express
or implied agreement).
23 Cf. Tolan v. Kimball, 33 P.3d 1152, 1152-54 (Alaska
2001) (discussing approximate amounts of unmarried cohabitants
financial contributions to their home but never calculating
totals or ordering those funds be repaid).
24 See former AS 32.05.350(2).
25 See former AS 32.05.130(1).
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