Farmers Insurance Company of Oregon et al v. Gelfand et al
Filing
47
Opinion and Order - McNary Estates Business Center, LLC's Motion for Summary Judgment (Dkt. 24 ) is GRANTED. Karen A. Gelfand's Motion for Summary Judgment (Dkt. 27 ) is DENIED. After conferring with all relevant parties, McNary may submit a proposed form of Judgment. Signed on 7/24/2015 by Judge Michael H. Simon. (mja)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF OREGON
FARMERS INSURANCE COMPANY OF
OREGON; FARMERS INSURANCE
EXCHANGE; TRUCK INSURANCE
EXCHANGE; MID-CENTURY
INSURANCE COMPANY; and FARMERS
NEW WORLD LIFE INSURSANCE
COMPANY,
Plaintiffs,
v.
MITCHELL S. GELFAND; KAREN A.
GELFAND; DEPARTMENT OF
REVENUE, STATE OF OREGON;
MCNARY ESTATES BUSINESS
CENTER, LLC; and NW PREFFERED
FEDERAL CREDIT UNION,
Defendants,
v.
UNITED STATES OF AMERICA,
Intervenor Defendant.
PAGE 1 – OPINION AND ORDER
Case No. 3:14-cv-870-SI
OPINION AND ORDER
Timothy W. Snider, STOEL RIVES LLP, 900 SW 5th Avenue, Suite 2600, Portland, OR 97204.
Of Attorneys for Plaintiffs.
Ellen F. Rosenblum, Attorney General, Kristin A. Gilman, Assistant Attorney General,
OREGON DEPARTMENT OF JUSTICE, 1162 Court Street NE, Salem OR 97301. Of
Attorneys for Defendant Oregon Department of Revenue.
David J. Zarosinski and Eric C. Hartwig, ZAROSINSKI HARTWIG P.C., 520 SW 6th Ave.,
Suite 1200, Portland, OR 97204. Of Attorneys for Defendant Karen Gelfand.
Mark B. Comstock, GARRETT HEMANN ROBERTSON P.C., 1011 Commercial Street NE,
Salem, Oregon 97301. Of Attorneys for Defendant McNary Estates Business Center, LLC.
Caroline D. Ciraolo, Acting Assistant Attorney General, Dylan C. Cerling, Trial Attorney, Tax
Division, U.S. DEPARTMENT OF JUSTICE, P.O. Box 683, Washington D.C. 20044. Of
Attorneys for Intervenor Defendant United States of America.
Michael H. Simon, District Judge.
This is an interpleader action brought by Farmers Insurance Company of Oregon and
related entities (collectively, “Farmers”) to resolve competing claims made on certain funds held
by Farmers on behalf of Defendant Mitchell S. Gelfand (“Mr. Gelfand”). Pending before the
Court are cross-motions for summary judgment filed by Defendant McNary Estates Business
Center, LLC (“McNary”) and Defendant Karen A. Gelfand (“Ms. Gelfand”). Dkts. 24, 27.1 For
the reasons that follow, McNary’s motion is granted and Ms. Gelfand’s motion is denied.2
STANDARDS
A party is entitled to summary judgment if the “movant shows that there is no genuine
dispute as to any material fact and the movant is entitled to judgment as a matter of law.”
1
Intervenor Defendant United States of America also has filed a partial opposition to
Ms. Gelfand’s motion for summary judgment. Dkt. 32. That motion contends that, in the event
Ms. Gelfand’s motion for summary judgment is granted, all funds to which she is entitled should
be disbursed to the United States to satisfy certain federal tax liens. As discussed below, because
the Court denies Ms. Gelfand’s motion for summary judgment, she is not entitled to any of the
interpleaded funds currently held by the Court.
2
As discussed below, Mr. Gelfand has failed to appear in this action. See infra n.5. NW
Preferred Federal Credit Union was previously dismissed from this case. See infra p. 6.
PAGE 2 – OPINION AND ORDER
Fed. R. Civ. P. 56(a). The moving party has the burden of establishing the absence of a genuine
dispute of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). The court must view
the evidence in the light most favorable to the non-movant and draw all reasonable inferences in
the non-movant’s favor. Clicks Billiards Inc. v. Sixshooters Inc., 251 F.3d 1252, 1257 (9th
Cir. 2001). Although “[c]redibility determinations, the weighing of the evidence, and the
drawing of legitimate inferences from the facts are jury functions, not those of a judge . . . ruling
on a motion for summary judgment,” the “mere existence of a scintilla of evidence in support of
the plaintiff’s position [is] insufficient . . . .” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 252,
255 (1986). “Where the record taken as a whole could not lead a rational trier of fact to find for
the non-moving party, there is no genuine issue for trial.” Matsushita Elec. Indus. Co. v. Zenith
Radio Corp., 475 U.S. 574, 587 (1986) (citation and quotation marks omitted).
Where parties file cross-motions for summary judgment, the court “evaluate[s] each
motion separately, giving the non-moving party in each instance the benefit of all reasonable
inferences.” A.C.L.U. of Nev. v. City of Las Vegas, 466 F.3d 784, 790-91 (9th Cir. 2006)
(quotation marks and citation omitted); see also Pintos v. Pac. Creditors Ass’n, 605 F.3d 665,
674 (9th Cir. 2010) (“Cross-motions for summary judgment are evaluated separately under [the]
same standard.”). In evaluating the motions, “the court must consider each party’s evidence,
regardless under which motion the evidence is offered.” Las Vegas Sands, LLC v. Nehme, 632
F.3d 526, 532 (9th Cir. 2011). “Where the non-moving party bears the burden of proof at trial,
the moving party need only prove that there is an absence of evidence to support the non-moving
party’s case.” In re Oracle Corp. Sec. Litig., 627 F.3d 376, 387 (9th Cir. 2010). Thereafter, the
non-moving party bears the burden of designating “specific facts demonstrating the existence of
genuine issues for trial.” Id. “This burden is not a light one.” Id. The Supreme Court has directed
PAGE 3 – OPINION AND ORDER
that in such a situation, the non-moving party must do more than raise a “metaphysical doubt” as
to the material facts at issue. Matsushita, 475 U.S. at 586.
BACKGROUND AND PROCEDURAL HISTORY
Mr. Gelfand was a district manager employed by Farmers. As a benefit of Mr. Gelfand’s
employment, Farmers held a contract value payment fund3 on his behalf valued at more than
$300,000. For reasons not relevant to the present action, sometime before August 2012,
Mr. Gelfand abandoned his insurance practice without paying his debts, failed to report or pay
state and federal taxes for several years, and neglected to provide financial support to his thenwife, Ms. Gelfand, and the couple’s two children. As a result of Mr. Gelfand’s actions, each of
the defendants in this matter claimed some interest in the contract value payment fund held by
Farmers. Simply put, this matter involves deciding the relative priority of each party’s interest in
Mr. Gelfand’s contract value payment fund. Becuase a determination regarding the priority of
each party’s interest largely turns on when that party perfected its interest, the Court lays out the
following background and procedural history in roughly chronological order.
On August 6, 2012, Ms. Gelfand filed a Petition for Dissolution of Marriage in
Clackamas County Circuit Court in Oregon (the “Gelfand Divorce Proceeding”) seeking, among
other things: divorce, division of marital property, spousal support, child custody, and child
support from Mr. Gelfand. On August 7, 2012, the Clackamas County Circuit Court entered a
Mutual Property Restraining Order under Or. Rev. Stat. § 107.093 to “restrain each party in the
dissolution action from taking certain actions to transfer encumber, conceal, or dispose of
property in which the other party has an interest.”
3
A contract value payment fund is described as a “reserve or retirement type of account,”
which is “available to a Farmers agent or district manager if he resigns, retires, or is discharged
by Farmers.”
PAGE 4 – OPINION AND ORDER
On September 5, 2012, McNary filed a complaint against Mr. Gelfand in Marion County
Circuit Court. On November 30, 2012, that court entered a default judgment against Mr.
Gelfand. On December 3, 2012, McNary issued a writ of garnishment to Farmers naming as
debtors Mr. Gelfand and his business.
On March 18, 2013, a Default General Judgment and Decree of Dissolution (the
“Divorce Judgment”) was entered in the Gelfand Divorce Proceeding. In the Divorce Judgment,
Ms. Gelfand was awarded, among other things, the following:
B. To the extent it is not claimed by parties with a superior legal
interest, $200,000 of the Farmers [contract value payment fund]
shall be distributed to Wife, Karen Gelfand, at the earliest of such
time or times as it is subject to distribution to Husband for the
purposes of meeting Husband’s spousal and child support
obligations to his wife and children.
C. After the payment of $200,000 to Wife for support, the balance
in the Farmers [contract value payment fund], if any, shall be
equally divided between Husband and Wife.
Dkt. 28, Ex. 6. The Divorce Judgment further notes that the contract value payment fund was
“the only financial resource there is for the payment” of Mr. Gelfand’s support obligations. Id.
On April 22, 2013, Farmers initiated this matter by filing an interpleader action in
Clackamas County Circuit Court against Mr. Gelfand, Ms. Gelfand, the Oregon Department of
Revenue (“DOR”), McNary, and NW Preferred Federal Credit Union (”NW Preferred”).
Farmers subsequently deposited a check in the amount of $305,665.48 with the circuit court. On
August 20, 2013, the circuit court dismissed Farmers from the case. See Dkt. 4, Ex. 10.
On September 16, 2013, the circuit court ordered $158,070.06 of the interpleaded funds
disbursed to NW Preferred. See Dkt. 4, Ex. 7. Those funds were disbursed, and the circuit court
subsequently dismissed NW Preferred from the case.
PAGE 5 – OPINION AND ORDER
On April 21, 2014, Intervenor Defendant United States of America (“United States”)
filed a both motion to intervene and a complaint in intervention in Clackamas County Circuit
Court. The United States asserted a claim to the funds at issue based upon certain federal tax
liens. On May 22, 2014, the motion to intervene was granted. On May 27, 2014, the United
States filed its Intervenor Complaint. On May 30, 2014, the United States filed a Notice of
Removal under 28 U.S.C. § 1446(b), removing the present action to this Court.4
On June 30, 2015, based upon the stipulations of the remaining parties, this Court ordered
$22,554.16 be disbursed to DOR, and further ordered that all claims against DOR were
dismissed. Dkt. 44.
On July 2, 2015, the United States informed the Court that, on August 1, 2014,
Ms. Gelfand had filed for bankruptcy, and on November 4, 2014, was granted an order of
discharge. See In re Karen Gelfand, Case No. 14-bk-34441-rld7. Dkt. 45.
DISCUSSION
Interpleader allows a plaintiff stakeholder to join in a single action those parties who
assert claims to a common fund held by the stakeholder. First Interstate Bank of Oregon, N.A. v.
U.S. By & Through I.R.S., 891 F. Supp. 543, 546 (D. Or. 1995) (citing 7 Charles A. Wright et al.,
Federal Practice and Procedure § 1702, at 493 (2d ed. 1986); see generally Fed. R. Civ. P. 22; 28
4
The United States invoked 28 U.S.C. § 1444 as its basis for removing the action. See Dkt 4,
Ex. 2. Section 1444 provides that “[a]ny action brought under section 2410 of this title against
the United States in any State court may be removed by the United States.” 28 U.S.C. § 1444.
Section 2410, in turn, provides that “the United States may be named a party in any civil action
or suit . . . in any State court having jurisdiction of the subject matter [ ] . . . of interpleader . . .
with respect to[ ] real or personal property on which the United States has or claims a mortgage
or other lien.” Id. § 2410(a). See Quality Loan Serv. Corp. v. 24702 Pallas Way, Mission Viejo,
CA 92691, 635 F.3d 1128, 1131 (9th Cir. 2011) (discussing removal by the United States in tax
lien cases).
PAGE 6 – OPINION AND ORDER
U.S.C. § 1335; ORCP 31. An interpleader action usually involves two distinct stages. First, the
court determines the propriety of interpleading the adverse claimants and relieving the
stakeholder from liability. The second stage involves an adjudication of the adverse claims of the
defendant claimants. 3A James WM. Moore & Jo D. Lucas, Moore’s Federal Practice
§§ 22.14[1] and [2] (2d ed. 1994); see also Cripps v. Life Ins. Co. of North America, 980 F.2d
1261, 1265 (9th Cir. 1992) (describing an interpleader action as follows: “[T]he ‘stakeholder’ of
a sum of money sues all those who might have claim to the money, deposits the money with the
district court, and lets the claimants litigate who is entitled to the money.”).
The present motions before the Court involve a determination at this second stage.
Consistent with a series of stipulations filed between the parties (See Dkts. 12, 17, 20, 22,
and 23) and the parties’ briefing in this matter, the remaining Defendants—McNary,
Ms. Gelfand, and the United States5—all agree that the remaining funds held by the Court are
only sufficient to satisfy the claims of one party. Further, the United States stipulates that
McNary’s interest in the contract value payment fund is superior to its own.6 Dkt. 12.
Ms. Gelfand and McNary, however, each claim that their own interest in the fund is superior to
the other party’s interest.
Thus, despite the complex procedural history of this case and its related state court
proceedings, the question now before the Court is relatively straightforward: When marital
property has been awarded to one spouse (here, Ms. Gelfand) in a state court divorce proceeding,
5
Although Mr. Gelfand is technically still a defendant in this case, he has failed to appear
in this action. Regardless, the Court finds that his interest in the contract value payment fund is
subordinate to that of all other Defendants and thus does not discuss his interest in the
interpleaded funds further.
6
As discussed above, the United States does not concede priority to Ms. Gelfand because
of taxes that it claims are jointly owed to the United States by Mr. and Ms. Gelfand,
notwithstanding Ms. Gelfand’s bankruptcy order. See Dkt. 32 and n.1, supra.
PAGE 7 – OPINION AND ORDER
does a judgment creditor’s (here, McNary) interest in that same marital property take priority
over the spouse’s interest if the judgment creditor perfects its interest after the filing of the
divorce proceeding but before the entry of judgment in the divorce proceeding? This issue is
complicated slightly, however, by the presence of the United States in this action, because the
United States’ federal tax lien affects the Court’s choice of law analysis. Accordingly, the Court
first determines what law applies to this action, and second, determines the relative priority of
McNary and Ms. Gelfand under the appropriate law.
A. What Law Applies
It is well settled that federal law determines the priority of competing federal and state
created liens. See United States v. Rodgers, 461 U.S. 677, 683 (1983); see also Quality Loan
Serv. Corp. v. 24702 Pallas Way, Mission Viejo, CA 92691, 635 F.3d 1128, 1134 (9th Cir. 2011)
(quoting Aquilino v. United States, 363 U.S. 509, 514 n. 5 (1960) (“[F]ederal law governs the
relative priority of federal tax liens and state-created liens.”); Bus. Title Corp. v. Div. of Labor
Law Enforcement, 553 P.2d 614, 618 (1976) (“It is now well settled and indeed beyond argument
that federal law rather than state law determines the priority of competing liens where one of
them is a tax lien asserted by the United States.”). “Absent provision to the contrary, priority for
purposes of federal law is governed by the common-law principle that ‘the first in time is the
first in right.’” United States v. McDermott, 507 U.S. 447, 449 (1993) (quoting United States v.
City of New Britain, 347 U.S. 81, 85 (1954) (internal quotation marks omitted)).
Just as federal law governs the issue of priority, it is equally well settled that “in the
application of a federal revenue act, state law controls in determining the nature of the legal
interest . . . in the property . . . to be reached by the statute.” Aquilino, 363 U.S. at 513 (quoting
Morgan v. Commissioner, 309 U.S. 78, 82 (1940)); see also Maryland v. Louisiana, 451 U.S.
725, 746 (1981) (courts must proceed from “the basic assumption that Congress did not intend to
PAGE 8 – OPINION AND ORDER
displace state law”). “The point at which a state created security interest attaches is a matter of
state law.” ICM Mortg. Corp. v. Herring, 758 F.Supp. 1425, 1426 (D. Colo. 1991) (citing Sec.
Pac. Mortg. Corp. v. Choate, 897 F.2d 1057, 1058-59 (10th Cir. 1990)). Federal revenue statutes
“creat[e] no property rights but merely atta[ch] consequences, federally defined, to rights created
under state law.” Progressive Consumers Fed. Credit Union v. United States, 79 F.3d 1228, 1235
(1st Cir. 1996) (quoting United States v. Bess, 357 U.S. 51, 55 (1958). For this reason, “it is
critical to determine “when competing state created liens come into existence or become valid.”
Progressive Consumers Fed. Credit Union, 79 F.3d at 1235 (citation and quotation marks
omitted); see also Aquilino, 363 U.S. at 514 (holding that reconciliation of state law defining
when a state created lien becomes effective and federal law governing priority between
competing liens “strikes a proper balance between the legitimate and traditional interest which
the State has in creating and defining the property interest of its citizens, and the necessity for a
uniform administration of the federal revenue statutes”).
Accordingly, the respective interests that McNary and Ms. Gelfand possess in the
contract value payment fund are questions of state law. After the nature of the parties’ respective
interests in the fund is established, the presence of the United States in this action requires the
Court to apply the federal common law principle of “first in time, first in right” to determine the
priority of the parties’ respective interests. Accordingly, the Court need answer only two further
questions: (1) what interests do McNary and Ms. Gelfand possess; and (2) when did they perfect
those interests?
B. McNary and Ms. Gelfand’s Interests in the Interpleaded Funds
1. McNary’s Interest
The nature of McNary’s interest in the contract value payment fund is not disputed by
any party. The judgment lien of McNary against Mr. Gelfand first arose on November 30, 2012,
PAGE 9 – OPINION AND ORDER
when a default judgment was entered against Mr. Gelfand in Marion County Circuit Court.
Execution by writ of garnishment was delivered to Farmers, as holder of the contract value
payment fund on December 3, 2012.7 Thus, McNary held a perfected interest in the contract
value payment fund as of December 3, 2012.
2. Ms. Gelfand’s Interest
The nature of Ms. Gelfand’s interest in the contract value payment fund is a more
difficult question and involves an analysis of Oregon’s domestic relations law. More specifically,
it depends on the operation of Or. Rev. Stat. §§ 107.105 and 107.115.
Or. Rev. Stat. § 107.105 governs the division of marital property. Under Or. Rev. Stat.
§ 107.105(1)(f), a court has authority to divide all of the property held by the parties at the time
of dissolution, regardless of how the property is titled and regardless of when it was acquired. In
re Marriage of Herald & Steadman, 355 Or. 104, 120 (2014); In re Marriage of Kunze, 337 Or.
122, 133 (2004). Property subject to the divorce court’s disposition authority is commonly called
“marital property.”8 Id. The statute further directs the court to divide property at dissolution in a
7
Under Oregon law, entry of a judgment creates a lien on all of a judgment debtor’s real
property located in the county in which the judgment is entered. Or. Rev. Stat. § 18.150(2). The
judgment’s entry does not, however, create a lien on personal property in the judgment debtor’s
possession. Such a lien is only created when the sheriff, pursuant to a writ of execution obtained
by the judgment creditor, actually levies on the personal property, as a predicate to the property’s
sale to satisfy the judgment. In re Grogan, 476 B.R. 270, 275 (Bankr. D. Or. 2012); see also Or.
Rev. Stat § 18.878(2) (providing that, “[w]hen a sheriff levies on personal property . . . the
interest of the judgment creditor in the personal property is the same as that of a secured creditor
with an interest in the property”).
8
Or. Rev. Stat. § 107.105(1)(f) creates two classes of property—marital property and
marital assets. Pierson and Pierson, 294 Or. 117, 121-22 (1982). Marital property is the “real or
personal property, or both, of either or both of the parties,” and constitutes the entire class of
property subject to the dispositional authority of the court in a marital dissolution action. Or.
Rev. Stat. § 107.105(1)(f); Pierson, 294 Or. at 121. “Marital assets” include all the “real or
personal property, or both, acquired by either of the spouses, or both, during the marriage.” Or.
Rev. Stat. § 107.105(1)(f); Stice v. Stice, 308 Or. 316, 325 (1989); Pierson, 294 Or. at 121-22.
“Marital assets” do not include assets brought into the marriage by either spouse, nor do they
PAGE 10 – OPINION AND ORDER
manner that is “just and proper in all the circumstances.” Or. Rev. Stat. § 107.105(1)(f). “To
achieve that directive, the statute empowers the court to distribute any real or personal property
that either or both of the parties hold at the time of dissolution, including property that the parties
had brought into the marriage.” Kunze, 337 Or. at 133 (emphasis added).
Further, the mere filing of marital dissolution proceedings brings the married couples’
interest in marital property “into question,” and “all of the marital assets are subject to an
equitable apportionment by the trial court.” In re Marriage of Cortese, 260 Or. App. 291, 300
(2013) (citing Hoyt v. American Traders. Inc., 301 Or. 599, 609 (1986)) (holding that a wife’s
petition for dissolution constituted lis pendens notice of her priority over liens subsequently
created by creditor’s registration of judgment against husband). Specifically, under Or. Rev. Stat.
§ 107.105(1)(f)(E), when the marital dissolution proceeding is filed, the property of each spouse
becomes subject to a vested, but inchoate claim of the other spouse. As that section explains:
Subsequent to the filing of a petition for annulment or dissolution
of marriage or separation, the rights of the parties in the marital
assets shall be considered a species of co-ownership, and a transfer
of marital assets under a judgment of annulment or dissolution of
marriage or of separation entered on or after October 4, 1977, shall
be considered a partitioning of jointly owned property.
Id.; see also In re Goss, 413 B.R. 843, 848 (Bankr. D. Or. 2009) (analyzing Or. Rev. Stat.
§ 107.105(1)(f)(E) in the context of bankruptcy proceedings and noting that, under Oregon law, a
spouses “pre-petition inchoate co-ownership interest” becomes a secured claim only upon entry
of the divorce judgment); In re Engle, 293 Or. 207 (1982) (discussing text and legislative history
of Or. Rev. Stat. § 107.105). Consequently, at the time of Ms. Gelfand’s divorce filing—August
6, 2012, one month before McNary filed its complaint against Mr. Gelfand—the property
include assets acquired after dissolution of the marriage. Id. at 121. Marital property is a larger
class of property than marital assets: “Property may be subject to the dispositional authority of
the court, yet not be a marital asset.” Stice, 308 Or. at 325.
PAGE 11 – OPINION AND ORDER
interests of both Mr. and Ms. Gelfand were “vested but subject to subsequent definition.” In re
Goss, 413 B.R. at 848 (quoting White v. Bell, 212 B.R. 979, 983 (10th Cir. BAP 1997).
As laid out in Or. Rev. Stat. § 107.105(3) and 107.115(1), however, the vested, but
inchoate claims of each spouse created upon filing of the divorce proceeding become “effective
for all purposes” only upon filing of a divorce judgment. Or. Rev. Stat. § 107.105(3) (“Upon the
filing of the judgment, the property division ordered shall be deemed effective for all purposes”);
Or. Rev. Stat. § 107.115(1) (“A judgment of annulment or dissolution of a marriage restores the
parties to the status of unmarried persons . . . .The judgment gives the court jurisdiction to award,
to be effective immediately, the relief provided by ORS 107.105.”) (emphasis added);
Grassmueck v. Food Indus. Credit Union, 127 B.R. 869, 872 (Bankr. D. Or. 1991) (analyzing the
effect of Or. Rev. Stat. § 107.105(3) in the context of bankruptcy proceedings and holding that
dissolution decree became effective upon entry of judgment).
Based upon this analysis of Or. Rev. Stat. § 107.105(3) and 107.115(1), as of the filing of
the divorce proceeding on August 6, 2012, Ms. Gelfand possessed a vested, but inchoate claim
on the contract value payment fund. That interest was subject to “subsequent definition” in the
Divorce Judgment that was issued on March 18, 2013. Accordingly, under Oregon law, the
Divorce Judgment itself governs the status of Ms. Gelfand’s interest in the contract value
payment fund.
As previously stated, in the Divorce Judgment, Ms. Gelfand was awarded, among
other things, the following:
B. To the extent it is not claimed by parties with a superior legal
interest, $200,000 of the Farmers [contract value payment fund]
shall be distributed to Wife, Karen Gelfand, at the earliest of such
time or times as it is subject to distribution to Husband for the
purposes of meeting Husband’s spousal and child support
obligations to his wife and children.
PAGE 12 – OPINION AND ORDER
C. After the payment of $200,000 to Wife for support, the balance
in the Farmers [contract value payment fund], if any, shall be
equally divided between Husband and Wife.
Dkt. 28, Ex. 6 (emphasis added). The emphasized language is dispositive: Ms. Gelfand’s interest
in the contract value payment fund is subordinate to any party with a superior legal interest.
Thus, any party’s interest that was perfected before entry of the Divorce Judgment on March 18,
2013 is superior to the interest of Ms. Gelfand. Following the common law “first in time, first in
right” analysis outlined above, McNary holds a superior legal interest in the funds because its
interest was perfected on December 3, 2012, upon execution of a writ of garnishment delivered
to Farmers.
Ms. Gelfand, however, objects to this analysis on the basis that McNary had actual or
inquiry notice of Ms. Gelfand’s divorce filing before it obtained a judgment in its own suit
against Mr. Gelfand. According to Ms. Gelfand, on September 11, 2012—6 days after McNary
filed its complaint against Mr. Gelfand in Marion County Circuit Court—a person employed by
McNary’s counsel searched the state courts’ electronic filing database (known as “OJIN”)
looking for lawsuits involving Mr. Gelfand.9 That search, if properly performed, would have
revealed the earlier petition for dissolution filed by Ms. Gelfand on August 6, 2012. See Dkt. 28,
Ex. 5 and 7. Ms. Gelfand argues that because McNary had either actual or inquiry notice of the
petition for dissolution, Oregon law requires that McNary’s interest in the contract value
payment fund be subordinate to the interest later awarded to Ms. Gelfand in the Divorce
Judgment.
9
McNary does not deny that one of its employees searched OJIN for other lawsuits
pending against Mr. Gelfand. Instead, McNary asserts that it did not have actual notice of the
Gelfand Divorce Proceeding and that any suggestion to the contrary is speculative.
PAGE 13 – OPINION AND ORDER
In support this argument, Ms. Gelfand rests almost entirely upon In re Marriage of
Cortese, 260 Or. App. 291 (2013), a recent decision from the Oregon Court of Appeals.
According to Ms. Gelfand, Cortese holds that an Oregon Circuit Court may, by entry of
judgment in a dissolution proceeding, divest a third-party creditor of one spouse of the creditor’s
secured interest in the property if that creditor had actual or inquiry notice of the divorce
proceeding. A close reading of Cortese and other similar Oregon cases, however, does not
support this conclusion.
The facts of Cortese are, at least superficially, similar to the instant case. In Cortese,
Wife filed for divorce in Clackamas County Circuit Court. Id. at 292. After Wife filed for
divorce, Husband’s Parents filed a lawsuit in Multnomah County Circuit Court and subsequently
obtained a default judgment against Husband in that matter. Id. Husband’s Parents then issued a
writ of execution to the Clackamas County Sheriff, ordering satisfaction of the default judgment
amount out of Husband’s personal property. Id. Husband’s Parents’ attorney then instructed the
Sheriff to levy and sell specific personal property then in possession of Wife. Id. Shortly
thereafter, the sheriff seized the personal property and provided notice of a public auction date.
Id.
At this point, the similarities between Cortese and the present case end. In Cortese, when
Wife learned of the default judgment and efforts to execute it, she objected to the sale of any
marital property, and the sheriff’s sale was postponed pending the outcome of the dissolution
hearing. Id. Wife then moved under Oregon Rule of Civil procedure (“ORCP”) 29 A10 to join
10
ORCP 29 A states:
A person who is subject to service of process shall be joined as a
party in the action if (1) in that person’s absence complete relief
cannot be accorded among those already parties, or (2) that person
claims an interest relating to the subject of the action and is so
PAGE 14 – OPINION AND ORDER
Husband’s Parents as necessary parties to the dissolution proceeding so that complete relief
could be accorded to Husband and Wife. Id. The trial court granted that motion. Id. After trial,
the circuit court entered a judgment awarding Wife, among other things, the specific personal
property identified by Husband’s Parents in their writ of execution, “free of any claim by
husband or parents.” Id. at 293. The circuit court based this decision on its “explicit[] [finding]
that [Husband’s] parents had actual notice not only of the dissolution proceeding but of the
restraining order itself.” Id. at 302. Husband and Husband’s Parents appealed. Id.
Citing Or. Rev. Stat. § 107.105(1)(f) and two earlier Oregon Court of Appeals’ cases
involving the disposition of interests in real property,11 the court in Cortese found that Husband’s
Parents’ actual knowledge of the divorce proceedings and the related asset restraining order
situated that the disposition in that person’s absence may (a) as a
practical matter impair or impede the person’s ability to protect
that interest or (b) leave any of the persons already parties subject
to a substantial risk of incurring double, multiple, or otherwise
inconsistent obligations by reason of their claimed interest. If such
person has not been so joined, the court shall order that such
person be made a party. If a person should join as a plaintiff but
refuses to do so, such person shall be made a defendant, the reason
being stated in the complaint.
11
Those two cases were Strawn v. Eder, 97 Or. App. 281 (1989), and Slauson v. Usher,
39 Or. App. 303 (1979). Strawn is a short, three-page opinion relying almost entirely upon
Slauson without further analysis. Slauson, however, does not hold that Or. Rev. Stat
§ 107.105(1)(f)— then numbered Or. Rev. Stat §107.105(1)(e) —empowers a circuit court to
divest a creditor with inquiry notice of a divorce filing of its secured interest in personal
property, as Ms. Gelfand contends. Instead, the court in Slauson explained that its holding
resulted from Oregon law governing notice of option interests in real property and mortgage
foreclosure proceedings. Id. at 307-309. Or. Rev. Stat. § 107.105 was relevant to the court’s
reasoning only to the extent that the underlying option interest was created by the divorce
judgment rather than by contract. Id. at 307 (“[T]here is no readily apparent reason why an
option interest in real property created by a dissolution decree should not have the same legal
status as one created by contract.”). Accordingly, the Court finds that Strawn and Slauson do not
support Ms. Gelfand’s position in this matter.
PAGE 15 – OPINION AND ORDER
made their prior interest “subject to the jurisdiction of the court in the dissolution proceeding.”
Cortese, 260 Or. App. at 302. In so finding, however, the Court of Appeals emphasized that:
[T]he trial court found that parents’ default judgment against
husband “was largely orchestrated by [husband] and calculated to
divert marital assets to . . . parents in contravention of the asset
restraining order in this proceeding.” Therefore, parents are
deemed to have been aware that any attempt to obtain a possessory
interest in property subject to disposition in the dissolution
proceeding—that is, under ORS 107.105(1)(f), personal property
belonging to either husband or wife, or both of them—was
ultimately subject to the jurisdiction of the court in the dissolution
proceeding.
Given parents’ actual notice of the dissolution proceeding, any
possessory rights or security interest that they obtained in the
[personal property] by way of the default judgment and writ of
execution against husband was taken subject to the trial court’s
authority in this proceeding to effect a division of assets that is
“just and proper in all the circumstances.” ORS 107.105(1)(f).
Therefore, the trial court acted within that authority when it
awarded the [personal property] to wife free of any encumbrance
by parents.
Id. Accordingly, the Court finds that the holding in Cortese is limited to its particular context: i.e.
circumstances where a state court specifically finds that a creditor’s interest in marital property
was created solely to circumvent that court’s authority to divide marital property under Or. Rev.
Stat. § 107.105.
This interpretation of Cortese is supported by the Oregon Court of Appeals’ opinions in
other factually similar cases. For example, in In re Marriage of Timm, 200 Or. App. 621 (2005),
Husband’s Parents obtained a default judgment against Husband. The circuit court found that
Husband’s Parents’ underlying lawsuit was a sham designed by Husband to “improve
[Husband’s] financial position . . . to the detriment of [Wife].” Id. at 624. The Court of Appeals
affirmed the circuit court’s opinion, noting that Or. Rev. Stat. § 107.105(1)(f) gave the circuit
court the authority ignore the default judgment and adjust any property division accordingly if it
PAGE 16 – OPINION AND ORDER
found that Husband’s Parents’ underlying lawsuit was a sham. Timm, 200 Or. App. at 626; see
also Matter of Marriage of Shelley, 127 Or. App. 616 (1994) (holding that where payments to a
third party are designed to reduce the assets available for division in a dissolution proceeding,
money so paid may be included in the property division); Matter of Marriage of Howard, 103
Or. App. 342, 349 (1990) (analyzing Or. Rev. Stat. § 107.105(1)(f) and holding that “[w]hen a
transfer of marital assets has been made without the consent of the other spouse, the trial court
may consider that in determining what is a ‘just and proper’ property division”). This case law
further demonstrates that Cortese is properly read as only one of a consistent line of cases from
the Oregon Court of Appeals dealing with one spouse’s wrongful dissipation of marital assets
through sham lawsuits designed to circumvent a circuit court’s authority to equitably divide
marital property.
Moreover, Cortese is distinguishable from the present action in a more basic way.
In Cortese, Husband’s Parents (as third-party creditors of Husband) were made a party to the
divorce proceedings under ORCP 29. As that court noted, “failure to join parents, who claim a
possessory interest over the marital assets, might have prevented the trial court from dividing
those marital assets as ‘may be just and proper in all the circumstances’ under
ORS 107.105(1)(f).” Cortese, 260 Or. App. at 299; see also McGoldrick and McGoldrick, 85 Or.
App. 412, 416 (1987) (noting that a conveyance of real property to a husband’s children could
not be set aside if grantees were not made parties to the dissolution proceeding). In the present
action, however, Ms. Gelfand obtained the Divorce Judgment by default; McNary was never
made a party to that action. Thus, the Divorce Judgment does not purport to determine the
interest of any party other than Mr. and Ms. Gelfand, and more importantly, expressly states that
PAGE 17 – OPINION AND ORDER
Ms. Gelfand’s holds an interest in the contract value payment fund only “[t]o the extent it is not
claimed by parties with a superior legal interest.” Dkt. 28, Ex. 6.12
This places the Court right back where it started with its earlier inquiry: (1) what interests
do McNary and Ms. Gelfand possess; and (2) when did they perfect their interests? Following
the common law “first in time, first in right” analysis that the Court must use in this matter,
McNary holds a superior legal interest in the funds because its interest was perfected on
December 3, 2012, three months before Ms. Gelfand’s interest was perfected by the Divorce
Judgment and operation of Or. Rev. Stat. § 107.105(3) and 107.115(1).
CONCLUSION
McNary Estates Business Center, LLC’s Motion for Summary Judgment (Dkt. 24) is
GRANTED. Karen A. Gelfand’s Motion for Summary Judgment (Dkt. 27) is DENIED. After
conferring with all relevant parties, McNary may submit a proposed form of Judgment.
IT IS SO ORDERED.
DATED this 24th day of July, 2015.
/s/ Michael H. Simon
Michael H. Simon
United States District Judge
12
The Divorce Judgment’s decision to award Ms. Gelfand $200,000 of the contract value
payment fund only “[t]o the extent it is not claimed by parties with a superior legal interest,” also
makes practical sense. The circuit court expressly found that the fund was the only asset that
Mr. Gelfand had available to pay his support obligations. Because no party other than
Ms. Gelfand was before the court to object to any division of marital property, the circuit court
wisely did not attempt to decide the potential interests in that fund possessed by unknown third
parties. Thus, Ms. Gelfand’s assertions regarding McNary’s actual or inquiry notice of the
Gelfand Divorce Proceeding are beside the point: Even if Or. Rev. Stat. § 107.105(1)(f) gave the
circuit court the power to divest third-party creditors of their interest in personal property, the
Divorce Judgment expressly did not do that.
PAGE 18 – OPINION AND ORDER
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?