Court Dismisses As Improvidently Accepted Property-Division Dispute Over Oil and Gas Signing Bonus. Kuhn v. Kuhn.

On July 14, 2015, by a vote of 5-2, the Supreme Court of Ohio sua sponte dismissed as improvidently accepted Kuhn v. Kuhn, 2015-Ohio-2806.  The issue in the case was whether a signing bonus for oil and gas rights associated with a piece of property separately owned by one spouse before the marriage, but acquired after the marriage, constitutes marital property subject to division in a divorce. Justice French dissented without opinion.  Justice Kennedy, who was a Domestic Relations judge before joining the high court, wrote a dissent in which she would have found for James Kuhn and adopted three of his four proposed propositions of law.  The case was argued May 5, 2015.

Case Background

Before he married Kelly Cottle in 2007, James Kuhn owned a piece of real property, which included mineral rights, as his separate property.  In 2011, the couple received a $121, 285 signing bonus from Gulfport Energy Corporation to allow the company to lease oil and gas rights on the property, plus a percentage of any future royalties. It is the signing bonus that was at issue in this appeal.

The trial judge, agreeing with the magistrate who heard the case, found that the signing bonus was passive appreciation of the mineral rights owned by James before the marriage, and thus his separate property under Ohio’s equitable distribution statute.

On appeal, the Fifth District Court of Appeals issued a split decision, with two judges voting to reverse on the signing bonus. Judges Sheila Farmer and Roger Wise found the signing bonus to be marital property like any other income generated during the marriage, which should be divided equally. Judge Scott Gwin dissented on this point, agreeing with the trial court that the signing bonus was passive income under R.C. 3105.171(B)(4), and thus solely James Kuhn’s separate property.

Read the oral argument preview of the case here, and the analysis of the argument here.

Case Dismissed as Improvidently Accepted

Chief Justice O’Connor, and Justices Pfeifer, O’Donnell, Lanzinger and O’Neill agreed the case should be improv’d.

Justice French dissented without opinion. She did not join Justice Kennedy’s separate dissent.

Justice Kennedy’s Dissent.

Justice Kennedy expressed her view that this case presented important questions about the classification of property upon divorce.  She briefly analyzed James Kuhn’s four proposed propositions of law, agreeing with three of them. She would thus reverse the court of appeals in this case.

James Kuhn’s First Proposed Proposition of Law and Justice Kennedy’s Analysis

I. Pursuant to Ohio Revised Code Sections 3105.171(A)(4) and 3105.171(A)(6)(a)(iii) passive appreciation and income is [sic] not marital property subject to division by the parties.

Kennedy found that this proposition of law correctly summarizes what the statute holds, and therefore would adopt it.

James Kuhn’s Second Proposed Proposition of Law and Justice Kennedy’s Analysis

II, Where one spouse owns real property in an area experiencing a high volume of oil and gas exploration and leasing, the acquisition and execution of a lease by the property owner is [sic] not the result of contribution of labor, money or in-kind contribution such that any income generated from said lease could be considered “active income” pursuant to Ohio Revised Code Section 3105.171 but is instead “passive income” generated from the separate property and therefore is not subject to division between the spouses in an action for divorce.

Kennedy believed the finding by the magistrate, and later, by the court, that the signing bonus was passive appreciation of mineral rights owned by James before the marriage, and thus his separate property, was a correct characterization of what is considered separate property under R.C. 3105.171.

James Kuhn’s Fourth Proposed Proposition of Law and Justice Kennedy’s Analysis

IV. Where no abuse of discretion is shown, a reviewing court may not modify or reverse a trial court’s decision regarding property division.

Kennedy notes that under long established Ohio Supreme Court precedent, the standard of review on division of property determinations is abuse of discretion, but here the lead appellate opinion improperly and incorrectly reviewed the trial court decision under a manifest-weight-of-the-evidence standard.

James Kuhn’s Third Proposed Proposition of Law and Justice Kennedy’s Analysis

III. The signature of a spouse upon a document regarding real estate, which signature is procured solely for the purpose of acknowledging the spouse’s dower interest does not create in the non-owner spouse an ownership interest in the subject real estate or any proceeds and/or benefits obtained from said real estate.

This is the only one of James Kuhn’s proposed propositions of law that Kennedy rejected.  She read this proposition as requiring consideration of a company’s motive in getting a spouse’s signature on a document, but notes that motive is irrelevant under the statute.

Concluding Observations

Here’s what I wrote after the argument:

Looks “like an improv, or a win for Cottle.  The court of appeals decision in the case was written in a confusing way… And the appeals court clearly could have been clearer about its abuse-of-discretion standard of review, in reversing on the signing bonus.  The case may well get kicked as just a routine case of equitable distribution, not one of general interest.”

At the oral argument, it was apparent that several justices wondered why they were hearing the case. Justice Pfeifer asked flat out if the case should be improv’d. Following up, Chief Justice O’Connor asked, what if the court were to improv it and just say it is not to be cited, so as to avoid any far-reaching effect. “The facts dictate the outcome of this case—we tie it up, put it in a box and nobody touches it again,” she said. Justice Lanzinger later asked if the case had any future application, and if there was anything for the court to write on. Other than for Justice Kennedy, apparently there wasn’t.

By dismissing the case, the appeals court decision stands, which means Kelly gets half of the signing bonus.

 

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