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Erwin v. Mendenhall

Supreme Court of Alaska

October 19, 2018

SHEILA LYNN ERWIN, Appellant and Cross-Appellee,
v.
WILLIAM H. MENDENHALL, Appellee and Cross-Appellant.

          Appeal from the Superior Court No. 3AN-10-09931 CI of the State of Alaska, Third Judicial District, Anchorage, Herman G. Walker, Jr., Judge.

          Robert C. Erwin, Robert C. Erwin LLC, Anchorage, for Appellant and Cross-Appellee.

          Douglas C. Perkins, Hartig Rhodes LLC, Anchorage, for Appellee and Cross-Appellant.

          Before: Stowers, Chief Justice, Winfree, Maassen, Bolger, and Carney, Justices.

          OPINION

          CARNEY, Justice.

         I. INTRODUCTION

         The superior court awarded one of the husband's investment accounts to the wife in a divorce. Before transferring the account to the wife, the husband transferred shares of three mutual funds from that account to a separate investment account. The wife asked the court to order him to account for the missing shares. The court ultimately ordered the husband to pay the wife the value of the shares on the date of the transfer and he did so. The parties contested the value of the income earned by the improperly transferred shares. Following lengthy litigation of this issue the court awarded the wife enhanced attorney's fees.

         The wife appeals the valuation of the earned income of the shares. The husband cross-appeals the valuation of the earned income on the shares and the award of attorney's fees. We find that the superior court appropriately awarded the wife prejudgment interest instead of damages as well as enhanced attorney's fees.

         II. FACTS AND PROCEEDINGS

         A. Facts

         Sheila Erwin and William Mendenhall married in Anchorage in June 1994. Erwin moved out of the marital home in February 2005 and filed for divorce in August 2010. Trial was held in December 2012.

         In its June 2013 findings of fact and conclusions of law the superior court found that a 50/50 split of property would be equitable. The court awarded Erwin the entirety of a UnionBanc retirement account in Mendenhall's name (Account) with any gains or losses before distribution. The Account consisted of shares of seven mutual funds. On February 11, 2014 Mendenhall transferred the shares for three of the mutual funds from the Account to one of his other accounts. At the time of this transfer the value of these shares was $ 164, 757.43. On February 13, 2014 the superior court issued a final judgment and decree of divorce.

         In April 2014 Mendenhall prepared a letter of authorization asking UnionBanc to liquidate the assets in the Account and to transfer the value to Erwin. He instructed UnionBanc not to allow Erwin access to any information about the Account. Erwin sent a copy of the divorce order to UnionBanc to effectuate the transfer; UnionBanc transferred the balance of the Account to her without liquidating the shares. Erwin received shares of four mutual funds.

         B. Proceedings

         In May 2014 Erwin filed a motion asking the court to order Mendenhall to account for the missing mutual fund shares. On September 23 the court ordered Mendenhall to provide an accounting for the missing shares within ten days. On September 30 Mendenhall's attorney asked for an extension from Erwin's attorney until October 31, although he apparently never formally filed for an extension from the court, nor did the court grant one. On October 31 Mendenhall emailed Erwin's attorney stating that he had not had time to look for any alleged missing funds but that he would transfer "the share amount" to Erwin if she gave him an account number.

         In December 2014 Erwin filed a notice to the court that Mendenhall had failed to comply with the court's order to account for the missing investments. Mendenhall responded that he had mistakenly transferred the shares to his children's college account but was willing to transfer the shares to Erwin. Erwin argued that Mendenhall's offer was unsatisfactory because he had never provided an accounting of the shares and did not guarantee that the transfer would protect the tax-deferred status of the funds.

         In February 2015 Mendenhall's attorney suggested a settlement: Mendenhall would pay Erwin $ 15 8, 000 if Erwin would withdraw her May 2014 motion. Mendenhall offered to transfer the money to Erwin's UnionBanc account. Erwin did not accept this offer.

         In June 2015 Erwin filed a motion to enforce the final judgment and decree of divorce. She asked the court to award her the value of the shares of the three mutual funds at the time of transfer plus any earnings and distributions on the shares since the transfer. Mendenhall filed a partial opposition, claiming that he had attempted to transfer Erwin the shares but that she had not provided him with her account number.

         The court held a hearing on these motions in December 2015. It ordered Mendenhall to determine the value of the three mutual funds on the date of the transfer and to transfer that amount to Erwin. The court held that Erwin was "entitled to any earnings that she would have been entitled to on those mutual funds" and instructed the parties to file briefs calculating the value of those earnings and providing a clear methodology for their calculations and authority for adopting the methodology. Mendenhall transferred Erwin $164, 757.43 in cash, which she received on January 5, 2016. In an order clarifying scheduling, the court stated that it was satisfied with the $164, 757.43 value at the time of the transfer and considered the issue resolved.

         Erwin then filed a brief on the lost investment earnings from the mutual fund shares. She proposed calculating the earnings by multiplying total distributions per share by the number of shares in the account at the time of the transfer. She based the total distributions per share on information from websites of the mutual funds and from Morningstar.[1] Erwin calculated that Mendenhall had received a total of $41, 920.88 in investment earnings on these three funds over the relevant time period.

         Mendenhall disputed Erwin's calculations and argued that the mutual fund shares had actually lost value during this time period. He argued that, because the funds had lost value, Erwin should reimburse him $17, 616.61. Mendenhall argued that the value of the shares of each of the mutual funds at the date of transfer should be multiplied by the change in value during the relevant time period to adjust the value of the shares. Erwin filed a reply, arguing for the first time that Mendenhall tortiously converted the shares of the mutual funds.

         The superior court held oral argument in July 2016. Erwin and Mendenhall presented the same proposed methodologies and values that they had argued in their briefs. The court found that neither proposed method of calculating the earnings was reliable because they were not based on any authority. It awarded Erwin prejudgment interest on the principal from the date of the transfer (February 11, 2014) until the date Erwin received the money (January 5, 2016) as a substitute.[2] It accepted Erwin's calculation of the interest and ordered Mendenhall to pay Erwin $11, 730.47 in prejudgment interest.

         Erwin moved for reconsideration, arguing that she was entitled to the earnings under the judgment of divorce, that prejudgment interest was not an adequate substitute for the shares that would have been purchased with the earned income on the shares, and that the court had not indicated that it wanted expert testimony or an evidentiary hearing. ...


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