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Catherine L. Walstad v. Richard H. Walstad

October 1, 2012

CATHERINE L. WALSTAD,
PLAINTIFF AND APPELLANT
v.
RICHARD H. WALSTAD, DEFENDANT AND APPELLEE



Appeal from the District Court of Cass County, East Central Judicial District, the Honorable Steven L. Marquart, Judge.

The opinion of the court was delivered by: Sandstrom, Justice.

N.D. Supreme CourtWalstad v. Walstad, 2012 ND 204 This opinion is subject to petition for rehearing. [Go to Documents]

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REVERSED AND REMANDED.

Opinion of the Court by Sandstrom, Justice.

[¶1] Catherine Walstad appeals from a judgment awarding her $37,222.90 in her action against Richard Walstad for fraudulently concealing marital property during the parties' 1994 divorce. She argues punitive damages may be recovered from a former spouse who concealed assets in a stipulated property settlement agreement in a prior divorce action and the district court abused its discretion in denying her motion to amend her complaint to assert a claim against Richard Walstad for punitive damages. We conclude a district court has equitable authority in an independent action in equity to enjoin enforcement or otherwise grant relief from the earlier divorce judgment on the bases of economic misconduct or fault in that proceeding, but may not award punitive damages in the context of granting relief from the prior divorce judgment. Because we are unable to discern whether the district court considered economic fault or misconduct in granting relief from the earlier divorce judgment, we reverse and remand.

I

[¶2] Catherine and Richard Walstad were divorced in 1994 after entering a stipulated property settlement agreement stating "[b]oth parties agree that each has made a full disclosure to the other of all assets and liabilities." The settlement agreement was incorporated into a 1994 divorce judgment that equally divided the parties' marital property, including their interest in a business.

[¶3] In 2009, Catherine Walstad sued Richard Walstad, alleging she had recently learned that before entry of the divorce judgment, he had paid two employees at the business more than $100,000 in bonuses with the understanding the employees would return the bonus money to him after the divorce. Catherine Walstad alleged Richard Walstad fraudulently failed to disclose the inappropriate bonus payments during the divorce, which resulted in a reduction in the value of the business for the parties' marital property valuation and a reduction in her share of marital property under the divorce judgment. She stated Richard Walstad's fraud constituted grounds for an independent action in equity to obtain relief from the divorce judgment. She asked the court to exercise its equitable powers and grant her relief from the 1994 divorce judgment by specifically requiring Richard Walstad to pay her more than $50,000, plus seven percent interest from the date of the divorce judgment.

[¶4] In 2010, Catherine Walstad moved to amend her complaint to assert a claim for punitive damages. The district court denied her motion, ruling punitive damages were not authorized under N.D.C.C. § 32-03.2-11(1) for her action for breach of the property settlement agreement in the divorce, because her action arose out of a contract. After a bench trial, Catherine Walstad asked the court to award her $195,266 in damages from Richard Walstad, ostensibly on the basis of her claim for half of the concealed property. The court awarded Catherine Walstad $37,222.90, finding Richard Walstad "wrongfully concealed" $50,000 from her during the divorce proceedings in a "scheme" and "concocted . . . [a] plan to hide assets from [her]." The court found Richard Walstad inappropriately paid a total of $50,000 in bonuses to the two employees in 1993, which should have been paid to him and included in the parties' marital estate. Using the parties' applicable tax bracket, the court decided he would have received about $35,000 after taxes and Catherine Walstad was entitled to half that amount, or $17,500. The court also awarded Catherine Walstad prejudgment interest of $19,548 and costs and disbursements of $174.90, for a total award of $37,222.90.

[¶5] The district court had jurisdiction under N.D. Const. art. VI, § 8, and N.D.C.C. § 27-05-06. Catherine Walstad timely appealed from the judgment under N.D.R.App.P. 4(a). This Court has jurisdiction under N.D. Const. art. VI, §§ 2 and 6, and N.D.C.C. § 28-27-01.

II

[¶6] Catherine Walstad argues the district court abused its discretion in denying her motion to amend her complaint to assert a claim for punitive damages under N.D.C.C. § 32-03.2-11(1), which provides, "[i]n any action for the breach of an obligation not arising from contract, when the defendant has been guilty by clear and convincing evidence of oppression, fraud, or actual malice, the court or jury, in addition to the actual damages, may give damages for the sake of example and by way of punishing the defendant." She argues her claim did not arise solely out of a breach of the stipulated property settlement agreement and asserts punitive damages may be recovered from a former spouse who concealed assets in a stipulated agreement leading up to a divorce judgment. She argues a party to a divorce action has an obligation imposed by operation of law not to make fraudulent representations, which is a corollary to the proposition that economic fault or misconduct may be considered in property distributions in divorce actions.

[¶7] Under N.D.R.Civ.P. 15(a), once a responsive pleading has been served, a complaint may be amended only by leave of court or by written consent of the opposing party. A district court has wide discretion in deciding whether to permit amended pleadings after the time for an amendment has passed. Darby v. Swenson Inc., 2009 ND 103, ¶ 11, 767 N.W.2d 147. We will not reverse a court's decision on a party's motion to amend a pleading unless the court abuses its discretion. Id. A court abuses its discretion when it acts arbitrarily, unconscionably, or unreasonably, or when its decision is not the product of a rational mental process leading to a reasoned determination. Farmers Alliance Mut. Ins. Co. v. Hulstrand Const., Inc., 2001 ...


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