Trial Court Wrongly Denied Motion To Set Aside Divorce Judgment

The trial court should not have denied the defendant’s motion to set aside the parties’ divorce judgment based on alleged fraud because the motion was timely and was allowed under the terms of the divorce settlement agreement, the Michigan Court of Appeals has ruled.

In Nagle v Nagle (Docket No. 345396), the defendant claimed that he entered into the divorce settlement agreement based on an inaccurate understanding of the facts surrounding the parties’ finances. Specifically, he alleged the plaintiff 1) fraudulently stole $250,000 from him during the marriage, 2) used the money to buy herself a house and 3) withheld the money and the property from the marital estate during the divorce proceedings. Four months after learning about the alleged fraud, the defendant filed a motion to set aside the divorce judgment and its incorporated settlement agreement. According to the defendant, his divorce settlement agreement expressly permitted him to bring a fraud claim.

The plaintiff, however, claimed the defendant’s motion was untimely. Alternatively, she maintained that even if it was timely, the settlement agreement’s mutual release clause expressly precluded the defendant from bringing a claim based on fraud.

The Oakland County Circuit Court agreed with the plaintiff and denied the defendant’s motion to set aside the divorce judgment.

The Court of Appeals reversed.

“We agree with defendant and hold that the defendant’s motion to set aside the judgment of divorce was expressly permitted by the divorce settlement agreement,” the Court of Appeals held. “Defendant filed his motion to set aside the judgment of divorce about 4 ½ years after the judgment of divorce, but only four months after … [a] deposition in which [the plaintiff’s boyfriend] outlined the alleged scope of plaintiff’s fraudulent actions. Thus, defendant filed his motion to set aside the judgment of divorce within a reasonable time because it was filed only four months after learning of plaintiff’s alleged fraud.”

Accordingly, the Court of Appeals vacated the trial court’s order and remanded the matter to the trial court for an evidentiary hearing.

Judges Jonathan Tukel, Deborah A. Servitto and Jane M. Beckering were on the panel that issued the unpublished decision.

Background

The plaintiff and the defendant were divorced in 2013. They entered into a divorce settlement agreement which included a clause titled “Mutual Release of Claims” that said: “Each party hereby releases the other, their heirs, assigns and successors in interest from all claims or causes of action that either may have against the other, known or unknown, which may have occurred prior hereto, whether that claim be founded in contract, tort, or upon any other basis. This release does not exclude any claims based upon fraud or which arise out of the obligations created by or specifically preserved in this Settlement Agreement.” The divorce settlement agreement was incorporated into and merged with the judgment of divorce.

In October 2017, the plaintiff learned that the plaintiff allegedly committed fraud when Andrew Compton, the plaintiff’s boyfriend, was deposed in an unrelated case. As a result, the defendant believed the plaintiff stole $250,000 from him while they were married, used most of that money to buy a house with Compton (while still married to the defendant) and did not disclose this information during the divorce proceedings.

Four months after learning about the plaintiff’s alleged fraud, the defendant filed a motion to set aside the judgment of divorce. The plaintiff, however, argued the defendant’s motion was untimely and that, even if it was timely, the mutual release clause in the divorce settlement agreement expressly precluded any claim based on fraud.

The trial court denied the defendant’s motion. The defendant appealed.

Mutual Release Clause

On appeal, the defendant argued the trial court erred by denying his motion to set aside the judgment of divorce based on the plaintiff’s alleged fraud.

“We agree,” the Court of Appeals said, noting that a divorce settlement agreement constitutes a contract.

The Court of Appeals then examined the mutual release clause in the divorce settlement agreement. According to the appeals court, although the language of the clause was clear and unambiguous, the parties disputed the meaning of the clause’s second sentence: “This release does not exclude any claims based upon fraud or which arise out of the obligations created by or specifically preserved in this Settlement Agreement.” The plaintiff claimed this sentence should be read to include fraud claims as a type of claim that the parties are barred from bringing against each other. The defendant, however, argued this sentence allowed him to bring his fraud claim.

Turning to the meaning of the word “exclude,” the Court of Appeals said it has not acquired any technical legal meaning and, therefore, must be interpreted according to its common and approved usage. “The plain meaning of ‘exclude,’ is ‘to prevent or restrict the entrance of,’ or ‘to bar from participation, consideration, or inclusion,’ and ‘to expel or bar esp. from a place or position previously occupied.’”

Therefore, “the clear language of the mutual release clause states that it does not prevent or bar from consideration claims based on fraud,” the Court of Appeals wrote. “Plaintiff reads the release exactly the opposite way of what it says, as actually meaning that it bars all claims based on fraud. Furthermore, plaintiff’s interpretation of the mutual release clause would render the second sentence nugatory. … Thus, the trial court erred when it held that the mutual release clause barred defendant’s fraud claim.”

Timely Motion

Although the divorce settlement agreement permitted the defendant to bring his fraud claim, the Court of Appeals noted that his motion to set aside the judgment of divorce still had to be timely for the trial court to consider it.

A party may seek relief from judgment under MCR 2.612(C) and subrule (1)(f) applied in this case, the Court of Appeals explained. That subrule says a party can seek relief from judgment based on “[a]ny other reason justifying relief from the operation of the judgment.”

A motion to set aside a prior judgment is timely under MCR 2.612(C)(1)(f) if it is filed within a “reasonable time,” the Court of Appeals stated. Here, the defendant filed his motion about four-and-a-half years after the judgment of divorce, but only four months after Compton outlined the scope of the plaintiff’s alleged fraudulent actions. “Thus, defendant filed his motion to set aside the judgment of divorce within a reasonable time because it was filed only four months after learning of plaintiff’s alleged fraud.”

In addition, MCR 2.612(C)(1)(f) “provides the court with a grand reservoir of equitable power to do justice in a particular case and vests power in courts adequate to enable them to vacate judgments whenever such action is appropriate to accomplish justice,” the Court of Appeals observed. “Indeed, a failure to set aside the judgment would permit ‘the improper conduct of the party in whose favor it was rendered,’ … to inure to the alleged wrongdoer’s benefit.”

Accordingly, “we must remand to the trial court for it to determine whether defendant’s allegations that plaintiff committed fraud by stealing from him and hiding the … property during their divorce are true,” the Court of Appeals concluded. “We therefore vacate the trial court’s order denying defendant’s motion to set aside the judgment of divorce and its incorporated divorce settlement agreement and remand to the trial court for the required evidentiary hearing.”