                                           No. 04-416

               IN THE SUPREME COURT OF THE STATE OF MONTANA

                                       2005 MT 242


IN RE THE MARRIAGE OF
RODNEY THOMAS LUTES,

              Petitioner and Respondent,

         v.

CYNTHIA JANE LUTES,

              Respondent and Appellant.



APPEAL FROM:         District Court of the Eighth Judicial District,
                     In and for the County of Cascade, Cause No. BDR 96-472
                     The Honorable Julie Macek, Judge presiding.



COUNSEL OF RECORD:

              For Appellant:

                     Joan E. Cook, Attorney at Law, Great Falls, Montana

              For Respondent:

                     Daniel L. Falcon, Falcon Lester & Schaff, Great Falls, Montana



                                                   Submitted on Briefs: September 26, 2005

                                                             Decided: September 27, 2005


Filed:



                     __________________________________________
                                       Clerk
Justice Patricia O. Cotter delivered the Opinion of the Court.

¶1     Cynthia Jane Lutes (Cynthia) appeals from the denial by the Eighth Judicial District

Court, Cascade County, of her motion that Rodney Thomas Lutes (Rodney), her ex-husband,

be held in contempt for his failure to pay to Cynthia a portion of his Veteran’s

Administration (VA) disability pay as a division of the marital estate, as agreed to and made

a part of their Decree of Dissolution of Marriage. We affirm.

                                           ISSUES

¶2     We consider the following issues:

¶3     1. Whether the Order refusing to hold Rodney in contempt is an appealable order

under § 3-1-523, MCA.

¶4     2.   Whether the District Court blatantly abused its discretion in refusing to hold

Rodney in contempt for his failure to pay the VA disability benefits, in light of Montana and

federal authority preempting state courts from including VA disability benefits in the

equitable division of a marital estate.

                  FACTUAL AND PROCEDURAL BACKGROUND

¶5     Cynthia and Rodney divorced on October 29, 1997, when the District Court entered

a Decree of Dissolution. The Decree incorporated a Property Settlement Agreement and an

Addendum thereto (together the “Agreement”), executed on September 12, 1997, and

October 7, 1997, respectively. The Agreement provided that Cynthia would receive a

portion of Rodney’s Air Force retirement benefits and a portion of Rodney’s VA disability

benefits as a part of the equitable distribution of their marital estate. Pursuant to the

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Agreement, the Department of Defense was to pay the share of retirement benefits directly

to Cynthia and Rodney was to pay the share of VA disability benefits to Cynthia on a

monthly basis. Neither the Agreement nor the Decree provided for any maintenance or child

support payments, and custody and visitation were not at issue.

¶6    Rodney first failed to make a number of the VA disability payments to Cynthia in

2002. He made only partial payments of the VA disability benefits through the rest of 2002

and all of 2003, and he stopped making those payments altogether in 2004. Rodney

remained current on all other payments under the Agreement. Cynthia brought this action

in the District Court, seeking to hold Rodney in contempt for failing to make the VA

disability payments pursuant to the Agreement. The District Court held a hearing at which

the parties presented evidence and made oral arguments. The District Court denied the

request for contempt and Cynthia appeals.

                               STANDARD OF REVIEW

¶7    Contempt orders in family law cases may be appealed “only when the judgment or

order appealed from includes an ancillary order that affects the substantial rights of the

parties involved.” Section 3-1-523(2), MCA. Where we review a district court’s decision

not to find a party in contempt, we will not reverse the decision absent a blatant abuse of

discretion. In Re Marriage of Baer, 1998 MT 29, ¶¶ 44-45, 287 Mont. 322, ¶¶ 44-45, 954

P.2d 1125, ¶¶ 44-45. We review a district court’s legal conclusions de novo, seeking to

determine whether the court correctly interpreted the law. Marriage of Strong v. Strong,

2000 MT 178, ¶ 11, 300 Mont. 331, ¶ 11, 8 P.3d 763, ¶ 11 (citing In re Marriage of Barker

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(1994), 264 Mont. 110, 113, 870 P.2d 86, 88)

                                        DISCUSSION

¶8     We first determine whether the Order denying the request for contempt is an

appealable order. This analysis requires us to determine whether the court’s Order denying

the Motion for Contempt includes an ancillary order affecting the substantial rights of the

parties. Section 3-1-523(2), MCA.

¶9     The District Court denied Cynthia’s Motion for Contempt because the District Court,

following our decision in Strong, did not have “the authority to enforce the Property

Settlement Agreement between the parties as it concerns the division of [Rodney’s] military

disability benefits.” In Strong we recognized that federal law, specifically the Uniformed

Services Former Spouses’ Protection Act, 10 U.S.C. § 1408 (USFSPA), and 38 U.S.C.

§ 5301 (providing that VA benefits are exempt from the claims of creditors), preempts the

state from distributing VA benefits as a part of the marital estate. Strong, ¶ 27 (following

Mansell v. Mansell (1989), 490 U.S. 581, 109 S.Ct. 2023, 104 L.Ed.2d 675); see also In re

Marriage of Murphy (1993), 261 Mont. 363, 862 P.2d 1143.

¶10    We generally reject the direct appeal of a contempt order in a dissolution of marriage

case that goes purely to the district court’s contempt power and does not “adjudicate any

ancillary matters falling within [the court’s] continuing jurisdiction over the rights of the

parties . . . .” In re Marriage of Grounds v. Coward, 2000 MT 128, ¶ 9, 300 Mont. 1, ¶ 9,

2 P.3d 822, ¶ 9. Direct appeal of a contempt order is appropriate only where “a court in a

single judgment, issues an order of contempt . . . and an ancillary order within its jurisdiction

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in determining the rights of the parties . . . .” Grounds, ¶ 6 (emphasis deleted).

¶11    Here the District Court ruled on Cynthia’s request for contempt and in so doing

adjudicated additional matters relating to federal preemption of the division of VA disability

benefits in the Agreement and Decree. The District Court’s determination affects the

substantial rights of the parties under the Agreement and Decree, most significantly

Cynthia’s, as the Order refusing to hold Rodney in contempt does not stand as a mere “lone

contempt order.” See Lee v. Lee, 2000 MT 67, ¶ 37, 299 Mont. 78, ¶ 37, 996 P.2d 389, ¶ 37

(a “lone contempt order” may not be reviewed on direct appeal). Instead, the District Court’s

denial of the contempt depends on, or is “ancillary” to, the District Court’s ruling on federal

preemption affecting the enforceability of the Agreement and Decree. We therefore

conclude that the District Court’s Order denying Cynthia’s Motion for Contempt is

appealable, as it includes an ancillary order affecting the parties’ substantial rights.

Grounds, ¶ 6; Lee, ¶ 37.

¶12    We next must determine whether the District Court’s refusal to hold Rodney in

contempt constituted a “blatant abuse of discretion.” Baer, ¶¶ 44-45. We evaluate whether

the trial court acted arbitrarily or exceeded the bounds of reason resulting in substantial

injustice. State v. Kearney, 2005 MT 171, ¶ 12, __ Mont. __, ¶ 12, __ P.3d __, ¶ 12. The

District Court’s Order denying the request for contempt hinges on its legal conclusions

regarding federal preemption and our decision in Strong. Ultimately, then, we must

determine de novo the legal question of whether the District Court correctly interpreted



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Strong, as the refusal to hold Rodney in contempt turns on whether federal law preempts the

division of VA disability benefits as a part of the marital estate.

¶13    The evidence shows that the Agreement and Decree required Rodney to pay VA

disability benefits as a part of the equitable distribution of the marital estate. The evidence

shows that Rodney entered into such Agreement and Decree voluntarily, and willingly made

those payments for several years. The evidence further shows that Rodney stopped making

those payments. On these facts alone, the refusal to hold Rodney in contempt might appear

to be a blatant abuse of discretion. As it turns out, however, the federal preemption trumps

the District Court’s authority to enforce Rodney’s obligation to pay the VA disability

benefits as part of the equitable distribution of the marital estate under the Agreement and

Decree.

¶14    As we noted above, the District Court denied Cynthia’s Motion for Contempt based

on Strong, in which we held that federal law preempts the state from distributing VA

benefits as a part of the marital estate. Strong, ¶ 27. We agree. Therefore, although the

evidence showed that Rodney had violated the terms of the Agreement, and hence the

Decree, by withholding payment of Cynthia’s share of his VA disability benefits, federal law

preempts the District Court from enforcing the Decree in regard to division of those benefits.

Given the weight of authority here, we must conclude that the District Court acted within its

discretion in refusing to hold Rodney in contempt.

¶15    Cynthia argues nevertheless that Rodney should be held in contempt because he

voluntarily entered into the Agreement to pay the VA disability benefits and he should,

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therefore, be forced to honor the Agreement and be estopped from attacking it. Relying

primarily on In re Marriage of Stone (1995), 274 Mont. 331, 908 P.2d 670, Cynthia argues

that the federal preemption found in Strong does not extend to preempt enforcement of

Rodney’s obligation to pay VA disability benefits under the Agreement and Decree in this

case. Cynthia’s reliance on Stone is misplaced.

¶16    The District Court concluded that our decision in Strong effectively overruled Stone.

We agree. Stone involved a property settlement agreement whereby the parties agreed to use

the proceeds from the husband’s VA disability benefits to pay maintenance. In upholding

the District Court’s denial of the husband’s motion to modify his maintenance obligations

based upon the provisions of the USFSPA, we concluded in Stone that the voluntary

contractual agreement between the parties did “not purport to assign [husband’s] veterans’

disability benefits to [wife].” Stone, 274 Mont. at 335, 908 P.2d at 673. We held that

though federal law “prohibits state courts . . . from dividing veterans’ disability benefits,

neither the Act nor the Supreme Court’s opinion in Mansell clearly preempt the parties’

ability to contract.” Stone, 274 Mont. at 335-36, 908 P.2d at 673. In Strong, however, we

concluded that the district court did not have the authority to enforce a property settlement

agreement provision the object of which was to distribute VA benefits as part of the marital

estate. Strong, ¶ 27. We said that “federal law preempts state courts from exercising

jurisdiction in a dissolution proceeding over any military benefit that is not ‘disposable

retired pay.’” Strong, ¶ 23 (emphasis deleted).




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¶17    We made no distinction in Strong between the exercise of jurisdiction in cases

involving maintenance and cases involving the division of the marital estate. While we did

not explicitly state in Strong that we were overruling Stone, that conclusion is inescapable.

In the wake of Strong, a district court may not order the division or allocation of VA benefits

to satisfy any marital obligation, be it maintenance or division of the marital estate,

regardless of whether the parties previously agreed to do so in a property settlement

agreement. We therefore now expressly hold that Stone was overruled by Strong.

¶18    Cynthia further argues on appeal that Rodney should be estopped from claiming the

invalidity of the Agreement. She failed, however, to present this argument to the District

Court. A party who wishes to rely on an estoppel argument must plead it; failure to do so

deems the argument waived. Williard v. Campbell (1932), 91 Mont. 493, 503, 11 P.2d 782,

786. This Court will not address issues raised for the first time on appeal. State v. Wetzel,

2005 MT 154, ¶ 13, 327 Mont. 413, ¶ 13, 114 P.3d 269, ¶ 13.

¶19    While we conclude here that federal preemption precludes the state from treating

Rodney’s VA disability benefits as part of the marital estate, it is worth noting what else we

said in Strong. At ¶ 40, quoting In re Marriage of Kraft (Wash. 1992), 832 P.2d 871, 877,

we said that “a trial court in a marriage dissolution action may consider military disability

retirement pay as a source of income in awarding spousal or child support, or generally as

an economic circumstance of the parties justifying a disproportionate award of [marital]

property to the nonretiree spouse.” Today, however, on the narrow review of an order




                                              8
denying contempt, we stand in no position to undo or redo the court’s Order dividing the

marital estate to comport with the intent of this proviso.

¶20    For the foregoing reasons, the District Court is affirmed.


                                                               /S/ PATRICIA O. COTTER


We Concur:

/S/ JAMES C. NELSON
/S/ JOHN WARNER
/S/ JIM RICE




Justice W. William Leaphart dissenting.

¶21    I dissent.

¶22    In In re Marriage of Strong, 2000 MT 178, ¶ 16, 300 Mont. 331, ¶ 16, 8 P.3d 763,

¶ 16, we held that federal law preempts the State from distributing V.A. benefits “as part of

a marital estate.” The Court reasons that Strong “effectively overruled Stone” and goes on

to rationalize that “[w]e made no distinction in Strong between the exercise of jurisdiction

in cases involving maintenance and cases involving the division of the marital estate.” ¶¶ 16

and 17.

¶23    First of all, that Strong did not expressly overrule Stone suggests that the Court

implicitly recognized that the maintenance issue in Stone was distinguishable from a division

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of the marital estate. Secondly, whether or not the Court in Strong drew a distinction

between maintenance and division of the marital estate, the federal precedent as well as the

Montana statutes do draw such a distinction.

¶24    The federal precedent, Mansell v. Mansell (1989), 490 U.S. 581, 109 S.Ct. 2023, 104

L.Ed.2d 675, relied upon in Strong, preempts a state from distributing federal benefits “as

marital property.” Mansell, 490 U.S. at 588-89. In Strong, as in Lutes, the issue is whether

the court can distribute benefits as part of the marital estate. The answer is no, it cannot.

In Stone, however, the Court did not purport to divide the benefits as part of the marital

estate. Rather, the parties agreed that the husband would pay maintenance and that he would

obligate himself to pay such maintenance from his benefits.

¶25    Stone is premised on the fact that maintenance is separate and distinct from the

division of marital property–which is the subject of the Mansell preemption. This distinction

is bourne out by the Montana statutes which provide that, in determining the amount of

maintenance, the court must consider the financial resources of the party seeking

maintenance, “including marital property apportioned to him . . . .” Section 40-4-203(2)(a),

MCA. In other words, the amount of maintenance is determined after the marital property

has been divided. Since maintenance is separate and distinct from the distribution of the

marital estate, it is not subject to the preemption.

¶26    Not only did Strong not overrule Stone, it in fact recognized the distinction between

division of property and an award of maintenance by holding that, although the court could

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not consider the V.A. benefits for purposes of dividing the marital estate, it could consider

post-dissolution V.A. benefits in determining the amount of maintenance. Strong, ¶¶ 29-

¶40. Stone is entirely consistent with Strong in that it recognizes that the parties can

voluntarily contract to pay the maintenance with the very same benefits that the court itself

can “consider.” Such an agreement as to maintenance does not mean that the V.A. benefits

have been distributed “as part of the marital estate.”

¶27    In needlessly overruling Stone, the Court has obliterated the distinction between

maintenance and division of the marital property. The Court reads more into the preemption

doctrine than is necessary and does so at the expense of the constitutionally-protected right

to contract.

                                                  /S/ W. WILLIAM LEAPHART

Chief Justice Karla M. Gray and Justice Brian Morris join in the dissent of Justice Leaphart.

                                                  /S/ KARLA M. GRAY

                                                  /S/ BRIAN MORRIS



Chief Justice Karla M. Gray, dissenting.

¶28    I join in Justice Leaphart's dissent. In particular, I expressly second his statements

that Strong not only did not overrule Stone, but that the two are entirely consistent. In any

event, however, it is important to point out that even if the Court were correct, this case

points out the necessity that we either harmonize a prior decision, properly distinguish it or




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explicitly overrule it. The failure to do so creates the very kinds of problems encountered

here by litigants, legal practitioners, trial courts and this Court.

¶29    I write separately with regard to an issue Cynthia raises but the Court, quite properly,

does not address. The Court notes at ¶18 that Cynthia did not present her estoppel argument

to the District Court and, for that reason, we do not address it because it is raised for the first

time on appeal. This result should not, in my view, necessarily be interpreted to mean that

Cynthia is now without any avenue of relief regarding the correct--but unfortunate--result

in this case. Relief may be available to her via such means as a motion to reopen the

property disposition pursuant to § 40-4-208(3)(b), MCA, or some appropriate action

pursuant to Rule 60(b), M.R.Civ.P., with regard to the Property Settlement Agreement

incorporated into the Decree here. I am not advising that Cynthia take any further action or

follow either of these potential avenues of redress; nor, of course, can anyone know whether

or to what extent actual redress might be forthcoming. I merely write to express my view

that Cynthia is not necessarily at the "end of the road" with regard to the issues in this case.


                                                     /S/ KARLA M. GRAY




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