Morris v. Morris

NOTICE: NOT FOR OFFICIAL PUBLICATION.
UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION IS NOT PRECEDENTIAL
AND MAY BE CITED ONLY AS AUTHORIZED BY RULE.

IN THE
ARIZONA COURT OF APPEALS
DIVISION ONE

In re the Matter of:

DEREK TERRENCE MORRIS, Petitioner/Appellant,

v.

JODIE LYNN MORRIS, Respondent/Appellee.

No. 1 CA-CV 19-0028 FC
FILED 12-5-2019

Appeal from the Superior Court in Maricopa County
No. FC2016-006248
The Honorable Ronee Korbin Steiner, Judge

AFFIRMED

COUNSEL

Cavanagh Law Firm, Phoenix
By Christina S. Hamilton
Counsel for Petitioner/Appellant

Hallier & Lawrence, PLC, Phoenix
By Angela K. Hallier
Co-Counsel for Respondent/Appellee

Jones Skelton & Hochuli, PLC, Phoenix
By Eileen Dennis GilBride
Co-Counsel for Respondent/Appellee
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Decision of the Court

MEMORANDUM DECISION

Judge David D. Weinzweig delivered the decision of the Court, in which
Presiding Judge Randall M. Howe and Judge John C. Gemmill1 joined.

W E I N Z W E I G, Judge:

¶1 Derrick T. Morris (“Husband”) appeals the superior court’s
decree of marital dissolution and denial of his motion for a new trial,
arguing the court erroneously classified his separate property as
community property. Husband further contests the court’s denial of his
motion in limine to preclude expert testimony about the commingling of
community and separate assets. We find no reversible error and thus
affirm.

FACTS AND PROCEDURAL BACKGROUND

¶2 Husband and Jodie L. Morris (“Wife”) married in Canada in
August 2002 and spent several years of their marriage in Arizona. They
have three children. Husband petitioned to dissolve the marriage in June
2016.

¶3 The parties agreed on most issues, but the court held a bench
trial to resolve their competing claims to real property in Canada, including
100 acres of agricultural land (the “BDM Land”) and a commercial building
(the “Financial Building”). Husband and Wife testified. The court also
heard testimony from Husband’s longtime bookkeeper, Joan Thomas, and
Wife’s expert accounting witness, Lynton Kotzin.

¶4 The court resolved all contested issues in a September 2018
dissolution decree. Most relevant here, the court found that the community
held an equitable lien of $1,636,626 on the Financial Building. The court also
determined that the community owned 93.2 percent of the BDM Land, and
Husband owned the remaining 6.8 percent as sole and separate property.
Husband timely appealed. We have jurisdiction pursuant to A.R.S. § 12-
2101(A)(1).

1 The Honorable John C. Gemmill, Retired Judge of the Court of
Appeals, Division One, has been authorized to sit in this matter pursuant
to Article 6, Section 3 of the Arizona Constitution.

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Decision of the Court

DISCUSSION

¶5 Husband contends the superior court erred in finding that the
community (1) held a $1,636,626 equitable lien on the Financial Building,
and (2) owned 93.2 percent of the BDM Land. Husband further argues the
court should have excluded the expert testimony of Lynton Kotzin.

A. The Financial Building

¶6 The Financial Building is Husband’s sole and separate
property. He purchased the Building before the marriage in 2002 for
$1,470,000, including a $725,000 mortgage. Husband’s bookkeeper also
opened a bank account—the Morris Management account—for the
Building’s rental income and expenses.

¶7 The superior court found that the Morris Management
account became commingled during marriage and that Husband pulled
$240,584 from the commingled funds to pay the Financial Building’s
mortgage. The court thus ordered that the community held an equitable
lien of $1,636,626 on the Financial Building “of which Wife is entitled to
half.”

¶8 On appeal, Husband challenges both the superior court’s
finding that the Morris Management account was commingled and the
amount of the community’s equitable lien.

1. Commingled Assets

¶9 We review de novo whether property is separate or
community property. In re Marriage of Pownall, 197 Ariz. 577, 581, ¶ 15
(App. 2000). The community may acquire an equitable lien against one
spouse’s sole and separate real property when community assets are used
to pay down a mortgage on that separate property. Drahos v. Rens, 149 Ariz.
248, 249-50 (App. 1985). And we presume that mortgage payments from
commingled funds are made with community assets unless presented with
“clear and satisfactory evidence” that the payments came from separate
funds alone. Brebaugh v. Deane, 211 Ariz. 95, 97-98, ¶ 6 (App. 2005); see
A.R.S. § 25–211(A).

¶10 The record amply supports that the Morris Management
account was commingled, and Husband did not rebut the presumption of
community assets. The evidence reflects that community assets were
transferred into the Morris Management account, the couple processed
personal transactions through the Morris Management account, the Morris

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Management account was used for financial transactions related to other
community-owned real property, and the couple transferred assets from
the Morris Management account to different community checking
accounts.

¶11 Husband concedes that community assets were deposited
into the Morris Management account, but insists that his bookkeeper
treated those deposits as community “loans” owed to the community, thus
ensuring the integrity of the community and separate funds in the account.

¶12 We are not persuaded for three reasons. First, the deposits of
community assets were not designated as “loans” until after this lawsuit
was filed. Before then, Morris Management’s financial statements
identified the deposits as “equity.” Second, the record contains no loan
documents or repayment schedules. And third, the record includes no
evidence that the community accrued interest on the purported loans.
Against this backdrop, Kotzin “explain[ed] that these transactions were not
separated and the outflows were distributions, not loans repaid,” which the
superior court found “persuasive.” Husband offered no expert testimony
to the contrary.

2. Lien Amount

¶13 Husband also argues that the superior court “inaccurately
calculated” the equitable lien. The existence and value of an equitable lien
present a mixed question of fact and law, but we uphold the superior
court’s factual findings unless clearly erroneous or unsupported by any
credible evidence. Valento v. Valento, 225 Ariz. 477, 481 (App. 2010).

¶14 We find no error. The superior court used the “value-at-
dissolution” approach, which is generally appropriate to value a
community lien. Id. “The community property equitable lien interest is
determined by adding the principal balance paid by the community to the
product of the community property principal payments divided by the
purchase price times the appreciation in value.” Drahos, 149 Ariz. at 250.
The court recognized that the Financial Building had appreciated by
$8,530,000 during the marriage, which meant the community’s $240,584
contribution generated a $1,636,626 community lien on the building.

¶15 We affirm the superior court’s decision on commingling and
the value of the equitable lien.

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B. The BDM Land

¶16 The BDM Land was acquired during the marriage in
September 2005 for $901,252. The purchase price was raised from three
sources, including $61,544 in Husband’s separate funds, $204,708 in
community funds, and a $635,000 mortgage. A month later, in October
2005, Husband borrowed money on a line of credit to fully repay the
$635,000 mortgage. But that transaction only shuffled lenders. The debt
remained intact and outstanding until January 2007. At that time, Husband
paid $595,381 from the Morris Management account toward the line of
credit. The Morris Management account had been funded only three weeks
earlier with $761,035 in community assets.

¶17 After a bench trial, the court found that the community
owned 93.2 percent of the BDM Land because it supplied $839,708 of the
$901,252 purchase price—which reflected the community’s original
$204,708 contribution plus the full $635,000 mortgage.

¶18 Husband contests the superior court’s finding that the
community owned 93.2 percent of the BDM Land while Husband
separately owned only 6.8 percent—instead claiming that he owned 78
percent. We review de novo the superior court’s classification of community
and separate property, Pownall, 197 Ariz. at 581, ¶ 15, but uphold its factual
findings unless they are clearly erroneous, Walsh v. Walsh, 230 Ariz. 486,
490, ¶ 9 (App. 2012).

¶19 We find no error. The BDM Land is presumed to be
community property because it was acquired during the marriage and
Husband never rebutted the presumption of community property with
clear and convincing evidence. Schickner v. Schickner, 237 Ariz. 194, 199, ¶
22 (App. 2015). The record reflects the community provided $204,708 of the
initial purchase price in September 2005, and later funded the Morris
Management account right before it was used in January 2007 to reduce the
line of credit.

¶20 Husband’s arguments miss the mark. He first claims the
October 2005 shuffle of lenders, which satisfied the initial debt, rebutted the
community presumption. As the court recognized, however, that
transaction was “really a fiction” because “Husband merely moved one
loan to another and did not pay that loan until the community made the
payment.” The “important” point was “that the only significant payment
on the ultimate loan associated with the BDM [L]and was not made until
the community paid the $761,0[35] into the Morris Management account.”

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¶21 Husband then argues he only borrowed the $761,035 deposit
from the community, which might have created a reimbursement claim, but
not an “increased” ownership interest. But here again, Husband failed to
provide the evidence needed to rebut the presumption of community
property. We affirm the superior court’s apportionment of the ownership
interests in the BDM Land.2

C. Motion in Limine

¶22 Husband claims the superior court erroneously denied his
motion to exclude Kotzin’s testimony on grounds that Kotzin offered “legal
conclusions.” We review for an abuse of discretion. State ex rel. Montgomery
v. Miller, 234 Ariz. 289, 297, ¶ 15 (App. 2014).

¶23 Kotzin did not offer a legal opinion. He examined 16 years of
financial transactions and offered his opinion on various financial and
accounting issues, including whether the financial evidence reflected a
series of loans from the community to the Morris Management account.
Kotzin has significant experience in forensic accounting and the court
valued his assistance in navigating a “complicated and detailed” set of
facts. Ariz. R. Evid. 703 (expert testimony should be helpful to the
factfinder). Nor did Husband challenge Kotzin’s methods. We find no
abuse of discretion.

CONCLUSION

¶24 We affirm the decree of dissolution. In our discretion, we
deny Wife’s request for an award of attorney’s fees under A.R.S. § 25-324.

AMY M. WOOD • Clerk of the Court
FILED: AA

2 Husband contends Rueschenberg v. Rueschenberg, 219 Ariz. 249 (App.
2008) controls this issue, but that case dealt with apportioning the earnings
and increased value of a spouse’s separate medical hardware business.

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