James Middleton Huger v. Stephanie Goliwas Huger

JAMES MIDDLETON HUGER * NO. 2021-CA-0535

VERSUS *
COURT OF APPEAL
STEPHANIE GOLIWAS *
HUGER FOURTH CIRCUIT
*
STATE OF LOUISIANA
*******

APPEAL FROM
CIVIL DISTRICT COURT, ORLEANS PARISH
NO. 2018-07554, DIVISION “K”
Honorable Bernadette D'Souza, Judge
******
Judge Joy Cossich Lobrano
******
(Court composed of Judge Joy Cossich Lobrano, Judge Paula A. Brown, Judge
Dale N. Atkins)

Mark J. Mansfield
Amy C. Cowley
TRANCHINA & MANSFIELD, LLC
321 E. Kirkland Street
Covington, LA 70433

COUNSEL FOR PLAINTIFF/APPELLEE

Marc D. Winsberg
Jonathan D. Gamble
WINSBERG HEIDINGSFELDER & GAMBLE, LLC
650 Poydras Street, Suite 2050
New Orleans, LA 70130

COUNSEL FOR DEFENDANT/APPELLANT

REVERSED

DECEMBER 14, 2022

JCL This is a domestic case. Defendant/appellant, Stephanie Goliwas Huger
PAB
(“Wife”), appeals the May 24, 2021 judgment of the district court, which overruled
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Wife’s objection to the Special Master’s recommendation regarding classification

of assets. For the reasons that follow, we reverse.

FACTS AND PROCEDURAL HISTORY

The instant appeal requires this Court’s review of a narrow issue: whether

certain property is properly classified as community or separate. Plaintiff/appellee,

James Middleton Huger (“Husband”), and Wife were married on April 16, 1994.

Four children were born of the marriage, who have all reached the age of majority.

The parties have a community property regime, and no premarital agreement was

established before the marriage. Husband was gifted and/or inherited certain assets

before and during the marriage. After college graduation, Husband worked in the

parking lot management business. Both before and during the marriage, he was

employed by a family company, Dixie Parking Service, Inc. (“Dixie”). At the time

of the marriage, Husband owned 44.39% of the stock in Dixie as his separate

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property. On December 21, 1995, the parties executed a declaration of

paraphernality regarding separate property that Husband brought into the marriage

in which Husband reserved all natural and civil fruits as his separate property. The

declaration of paraphernality was filed into the conveyance records in Orleans

Parish on or about January 3, 1996.

On July 30, 2018, Husband filed a Petition for Divorce pursuant to

Louisiana Civil Code Article 102, and on September 6, 2019, a judgment of

divorce was granted. On February 12, 2019, the parties entered into a consent

judgment to appoint Steven J. Lane as Special Master to make findings and

recommendations regarding the determination, valuation, and allocation of the

parties’ community assets, liabilities, and reimbursement claims.1 A bifurcated

traversal trial took place on August 19, 20, and 21, 2020, and September 21, 2020,

during which the Special Master received evidence and heard oral argument and

testimony regarding the classification of certain assets. The assets in dispute were

largely comprised of the parties’ interests in numerous limited liability companies

(“LLCs”).

1 Louisiana Revised Statute 13:4165 governs the appointment, duties, and powers of special

masters in particular civil cases. “Pursuant to the inherent judicial power of the court and upon
its own motion and with the consent of all parties litigant, the court may enter an order
appointing a special master in any civil action wherein complicated legal or factual issues are
presented or wherein exceptional circumstances of the case warrant such appointment. . . .” La.
R.S. 13:4165(A). “The court may order the master to prepare a report upon the matters submitted
to him and, if in the course of his duties he is required to make findings of facts or conclusions of
law, the order may further require that the master include in his report information with respect
to such findings or conclusions.” La. R.S. 13:4165(C)(1). “Within ten days after being served
with notice of the filing of the report, any party may file a written objection thereto. After a
contradictory hearing, the court may adopt the report, modify it, reject it in whole or in part,
receive further evidence, or recommit it with instructions. If no timely objection is filed, the
court shall adopt the report as submitted, unless clearly erroneous.” La. R.S. 13:4165(C)(3).

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On November 4, 2020, the Special Master issued a report of his

recommendation concerning classification of the assets in dispute. The Special

Master recommended that sixteen properties are assets of the community and that

Husband’s interest in fourteen assets are Husband’s separate property. The

recommendation reflects the parties’ stipulation that fifteen additional assets were

Husband’s separate property. On November 13, 2020, Wife filed an objection to

the Special Master’s recommendation. Following a contradictory hearing on May

10, 2021, the district court rendered judgment on May 24, 2021, adopting the

Special Master’s recommendation in its entirety. The district court then rendered a

judgment on June 28, 2021, designating the May 24, 2021 judgment as final for the

purposes of immediate appeal. This appeal followed, in which Wife contests the

classification of twelve of these assets as Husband’s separate property.

ASSIGNMENTS OF ERROR

Wife raises the following assignments of error on appeal:

1. The trial court erred in concluding that Appellee
presented sufficient evidence to overcome the strong
legal presumption that his interest in twelve entities
formed or acquired during the marriage are community
property.

2. The trial court erred in applying the principle of real
subrogation to the pertinent transactions at issue and
finding that the nature of certain capital contributions
resulted in the business entities being classified as
separate property.

3. The trial court erred in considering and relying on the
parties’ intent when determining the classification of any
assets in dispute.

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DISCUSSION

Classification of Community and Separate Property

Under Louisiana law, property of married persons is classified as either

community or separate. La. C.C. art. 2335. The classification of property as

separate or community is fixed at the time the thing is acquired. In re Succession of

Allen, 05-0745, p. 3 (La. App. 4 Cir. 1/4/06), 921 So.2d 1030, 1032. Pursuant to

Article 2338 of the Louisiana Civil Code, community property is comprised of:

property acquired during the existence of the legal
regime through the effort, skill, or industry of either
spouse; property acquired with community things or with
community and separate things, unless classified as
separate property under Article 2341; property donated to
the spouses jointly; natural and civil fruits of community
property; damages awarded for loss or injury to a thing
belonging to the community; and all other property not
classified by law as separate property.

Under Civil Code Article 2341, separate property of a spouse includes, in

relevant part:

property acquired by a spouse prior to the establishment
of a community property regime; property acquired by a
spouse with separate things or with separate and
community things when the value of the community
things is inconsequential in comparison with the value of
the separate things used. . . .

A district court’s findings as to whether property is community or separate

are factual determinations subject to manifest error review. Ross v. Ross, 02-2984,

p. 18 (La. 10/21/03), 857 So.2d 384, 395. Things possessed by either spouse during

a community regime are presumed to be community things, but either spouse may

rebut the presumption. La. C.C. art. 2340. The spouse seeking to rebut the

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presumption of community bears the burden to prove by a preponderance of the

evidence that the things are separate property. Talbot v. Talbot, 03-0814, p. 12 (La.

12/12/03), 864 So.2d 590, 600.

“The principle of real subrogation is applicable to both separate and

community property.” La. C.C. art. 2341, cmt. (c). Under real subrogation, when a

separate asset of a spouse is utilized to obtain a new asset, that new asset remains

the spouse’s separate property. Thus, “when a thing forming a part of the separate

property of a spouse is converted into another thing, the mass of the separate

property is not diminished”; “[t]he new thing takes the place of the old. . . .” Id.

Real subrogation “allow[s] a spouse with separate assets to manage and replace

those assets as a patrimonial mass independent of the community.” Curtis v.

Curtis, 07-392, p. 9 (La. App. 3 Cir. 11/7/07), 969 So.2d 1277, 1283 (quoting

Katherine S. Spaht & W. Lee Hargrave, Louisiana Civil Law Treatise:

Matrimonial Regimes, § 3.47 (2d ed. 1997)). “Partnership interests owned by a

person before marriage remain separate property.” Id. “If that equity position is

replaced with a similar equity interest in a succeeding partnership or corporation,

real subrogation occurs and the new interest remains a separate asset.” Id.

JMH Realty, LLC

We now discuss the specific assets in dispute. JMH Realty, LLC (“JMH”) is

a real estate holding company. The parties and the Special Master characterize

JMH as the crux of this appeal, because most of the entities at issue were funded

with contributions from JMH. The Special Master recommended that JMH is 98%

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Husband’s separate property and 2% Wife’s separate property; that the parties are

both members of the LLC; and that no valid operating agreement exists. Thus,

according to the Special Master, the parties are each entitled to half the profits of

the LLC pursuant to La. R.S. 12:1323.2

In reaching this recommendation, the Special Master agreed with Husband’s

argument that the principle of real subrogation applies. JMH was formed during

the marriage with an initial capital contribution of $1,000, which, according to

Husband’s testimony, was an advance of capital from Husband’s separate property

interest in Dixie.3 Husband described the initial capital contribution as a “due

to/due from,” which he understood to be an accounting mechanism to track

advances from one entity to another. The Special Master determined that Husband

was the only living witness able to testify to the events surrounding the formation

of JMH, particularly, the source of the funds used to capitalize JMH, and the

Special Master was persuaded by Husband’s testimony as to the source of said

funds.

2 La. R.S. 12:1323 provides as follows:

The profits and losses of a limited liability company shall be
allocated among the members and among classes of members in
the manner provided in a written operating agreement. To the
extent the operating agreement does not so provide in writing,
profits and losses shall be allocated equally among the members.
The provisions of this Section regarding the allocation of losses
shall not affect the limitations on the liability of members and
managers set forth in R.S. 12:1320.
3 As defined by La. R.S. 12:1301(A)(3), “ ‘Capital contribution’ means anything of value that a

person contributes to the limited liability company as a prerequisite for, or in connection with,
membership, including cash, property, services rendered, or a promissory note or other binding
obligation to contribute cash or property or to perform services.”

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The parties stipulated to the following. JMH was formed on July 11, 1994,

which was during the marriage but before the parties executed the declaration of

paraphernality reserving fruits of Husband’s separate property to Husband. The

Articles of Organization show $1,000 total contributions of capital to JMH: $980

from Husband and $20 from Wife. The Articles of Organization do not identify the

source of the parties’ capital contributions or whether the funds contributed were

the separate or community property of the respective spouses. The $1,000 initial

funding was recorded on JMH’s balance sheet and ledger as equity contributions to

accounts named “CONTBNS/JMH” (98% ownership interest) and

“CONTBNS/SJG” (2% ownership interest) for amounts of $980 and $20,

respectively. The first piece of property acquired by JMH was 400 S. Rampart

Street on July 20, 1994.

Husband was the only witness who testified to his recollection of the source

of funds used to capitalize JMH. According to Husband, the $1,000 contribution to

JMH was an advance of capital from Husband’s separate property interest in Dixie.

In capitalizing JMH this way, Husband had intended to keep JMH as his separate

property to carry forward to his children. Husband testified that he gifted Wife a

2% interest in JMH, and both parties testified that they joked about their respective

98% and 2% ownership percentage interests during the marriage.

Husband’s CPA expert, Marc DeRouen, testified to five forms of payments,

which can be made to LLC owners: salaries, distributions, loans, advances, and

liquidating (or partially liquidating) distributions. According to DeRouen’s

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testimony, advances coded as “due to/due from” are prevalent in closely held

companies. DeRouen explained the difference between a loan and an advance, in

that loans are more formal, while with an advance there is no certainty of

repayment, no profit, no interest, and no collateral. DeRouen stated that, where an

owner receives an advance that is not repaid, the owner will receive less at the

liquidation of the LLC, because the owner has already been advanced a portion of

his capital. Other witnesses, including Husband’s forensic expert Chris Peters and

the Chief Accounting Officer of JMH Companies Management Brian Showalter,

gave similar testimony that a “due to/due from” is not coded as a loan and interest

is not charged; rather, “due to/due from” is used to track the flow of money

between companies, particularly those with similar ownership.

Husband introduced into evidence a memorandum created

contemporaneously with the formation of JMH. The memorandum at issue is dated

August 23, 1994, and is addressed to Husband from Andrew Hoffman, who at the

time was the controller for Husband’s family company, Gulfside, Inc., stating, in

relevant part:

I have shown the $1,000 down payment on the property
as a contribution by you and Stephanie into JMH Realty,
LLC. In your books I have also shown the debt as due to
Dixie and set up the LLC as an investment. I noticed a
separate advance from Dixie on 6/22/94 of $1,205.00,
($205 for personal expenses and $1,000 unknown) that I
assumed is not related. If I am correct Rob should show
the $1,000 down payment as a loan to you by Dixie.

Hoffman testified that he had no memory of this transaction, did not keep

Dixie’s books, and did not know how Dixie coded the transaction on its books.

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Based on his review of his memorandum, Hoffman understood his language as a

question to Husband, not a statement, as to whether the $1,000 should be recorded

as a loan or something else on Husband’s books. Hoffman’s mention of “Rob,”

referred to Rob Crews, then the accounting manager and controller for Dixie, who

is deceased and did not testify. No one who was employed by JMH or Dixie in

1994 testified at trial.

Wife contends that Husband failed to rebut the presumption that JMH is

community property and that the principle of real subrogation does not apply to

JMH’s formation. Wife argues, in part, that Husband’s testimony regarding

capitalization of JMH was uncorroborated and contradicted by other evidence. We

agree.

We find, as a matter of law, that a spouse’s uncorroborated testimony,

contradicted by other evidence, is insufficient to rebut the presumption of

community by a preponderance of the evidence. No Dixie ledgers, bank records, or

cancelled checks were introduced to provide evidence of the source of funds for

any initial capital contribution into JMH. No claim was made and no evidence was

introduced that Husband sold any Dixie stock to fund the initial capitalization of

JMH with such proceeds. Hoffman’s memorandum is the only contemporaneous

document referencing Dixie as the source of funds contributed to JMH. The

memorandum, however, does not corroborate Husband’s testimony that $1,000.00

of his equity position in Dixie was advanced to JMH at the time of its formation.

Instead, the memorandum describes a “$1,000 down payment on the property” as a

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“debt [] due to Dixie” which Hoffman anticipated Dixie should document in its

books as a “loan” to Husband.4 Nothing in this description substantiates that

Husband’s separate property stock in Dixie was converted and subrogated to his

newly formed interest in JMH.5 Hoffman was likewise unable to testify to any

independent recollection of this transaction.

We have located no reported cases addressing Louisiana courts’ treatment of

an advance of capital in classifying separate or community property. We recognize

the policy consideration furthered in Talbot, 03-0814, p. 12, 864 So.2d at 599-600,

in accepting parol testimony to sustain a spouse’s burden of proving the separate

nature of property by a preponderance of the evidence. The Supreme Court

deemed:

[N]ear impossible the ability of some spouses to prove
the separate nature of property acquired, as in this case,
years before the establishment of the regime and decades
before its termination. During that broad expanse of time,
records are lost, destroyed, and possibly even stolen, and
to satisfy this burden of proof, a spouse will potentially
need to keep evidence of every donation and gift received
and purchase and transfer made dating back years before
marriage, even as in this case into childhood. This is an

4 Wife contends that a loan from Dixie to Husband would create a community debt used to fund

JMH, such that the proceeds of the loan, used to capitalize JMH, are a community asset. See La.
C.C. art. 2360 (“An obligation incurred by a spouse during the existence of a community
property regime for the common interest of the spouses or for the interest of the other spouse is a
community obligation.”).
5 Contrast Curtis, 07-392, p. 9, 969 So.2d at 1283 (husband’s pre-marriage, separate property

equity interest in his former law corporation was cashed out and transferred to a similar equity
position in the new law corporation); Smith v. Smith, 95-0913, pp. 9-10 (La. App. 1 Cir.
12/20/96), 685 So.2d 649, 654-55 (husband’s ownership of the stock in a new medical
corporation formed during the marriage was his separate property as it was essentially identical
to a former corporation whose charter was revoked, and the new medical corporation was formed
with the proceeds of the sale of husband’s shares in the former corporation); Moise v. Moise, 06-
876, p. 6 (La. App. 5 Cir. 3/13/07), 956 So.2d 9, 12 (land, which was husband’s undisputed
separate immovable property, was his capital contribution in consideration for 100% ownership
in LLC).

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impractical and unwieldy burden, which the Legislature
and the Law Institute did not intend through their
revision of the community presumption. . . .”

Id.

Nevertheless, Mrs. Talbot introduced documentary proof that she was the

registered holder of the stocks at issue, and her unrefuted testimony that she

received the stocks from her grandfather many years before the marriage was

corroborated by testimony of two fact witnesses, her brother and sister, who

likewise received stocks from their grandfather under similar circumstances. Id.,

03-0814, pp. 13-14, 864 So.2d at 600-01. No such evidence exists in this case, and

we find Talbot distinguishable. While we find no error in the district court’s

allowance of Husband’s testimony as parol evidence of the source of funds, under

the circumstances presented, the district court erred in its assessment that

Husband’s testimony, alone and without more, met his burden to rebut the

presumption of community by a preponderance of the evidence.

Husband presented evidence of his business practice of using “due to/due

from” in the course of accounting for advancing funds from one business interest

to another. Testimony of Husband’s accountants and experts supported Husband’s

contention that an advance of capital is an existing accounting mechanism used in

closely held and related business entities. Even so, none of the evidence introduced

before the Special Master corroborated Husband’s testimony that his capital

account in Dixie was the source of the funds forming the $1,000 capital

contribution to JMH. Rather, Hoffman’s memorandum, generated close in time to

JMH’s formation, suggested a loan from Dixie and contradicted Husband’s

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testimony that his separate property – equity in Dixie – provided the initial funding

to JMH.

While this Court can appreciate the policy considerations behind permitting

parol evidence under the circumstances presented, such policy cannot be read so

broadly as to allow a spouse to establish his separate property with only his

testimony, where other evidence contradicts that classification. Something more is

required. It must not be overlooked that Husband, as the spouse seeking to

establish the separate nature of property, bore the burden of rebutting the

presumption of community. We find that he failed to establish the separate nature

of JMH by a preponderance of the evidence, and did not overcome the

presumption that JMH is community property.

Remaining Assets

Turning to the eleven remaining entities at issue, all were formed during the

marriage and after the formation of JMH. These entities received initial funding

from JMH, which this Court has determined is a community asset.

Breakwater Investments, LLC is a subsidiary of JMH and received its initial

capital from a transfer of real estate from JMH. Orcutt, LLC received initial

funding from a distribution from JMH to Husband. Muskeget, LLC, Belladonna

Day Spa, Inc., and Mahoney’s 2 Iberville St., LLC received initial funding as an

advance from JMH. Pinnacle Property Management, LLC was capitalized by

contributions from Husband and Wife, and Husband testified the source of the

contributions was JMH.

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Husband purchased a 95% interest in Winnie’s Artsy Café, LLC using funds

advanced from JMH and from Husband’s checking account. Magazine Street

Foods, LLC’s initial activity was the purchase of real estate with funds advanced

from JMH. JMH owns an interest in Ekistics Hospitality Group, LLC. JMH also

owns 100% of JMH Realty No. II, LLC. RT, II, LLC’s initial activity was the

acquisition of a yacht from JMH Realty No. II, LLC.

It is undisputed that JMH provided initial funding for each of these assets.

Property acquired with community things is classified as community property. See

La. C.C. art. 2338. Considering our conclusion that JMH is a community asset, and

for the reasons discussed herein, we find that the district court erred in finding that

Husband rebutted the presumption that his interests in these eleven entities are

community property. These assets must likewise be classified as community

property.6

Finding that Husband failed to establish the separate nature of his interest in

JMH and the subsequently formed entities, we reverse.

CONCLUSION

Accordingly, for the reasons ascribed in this opinion, we reverse the

judgment of the district court.

REVERSED

6 Considering our conclusion, we find it unnecessary to reach Wife’s remaining arguments.

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