CASE STUDY:
lanza v. lanza 2005

Lanza v. Lanza, 898 So.2d 280 (La. 2005).

Facts and Procedural history: Louis Lanza and Vicki Lanza, now Vicki Coudrain, were married on August 1, 1975.  On January 23, 1981, Mr. Lanza signed an Agent’s Acceptance of Agreement to become a State Farm agent. Mr. Lanza then began operation of the Lou Lanza State Farm Agency.

 

A Petition for Divorce was filed on September 11, 1997, and a Consent Judgment of Divorce was entered into on August 12, 1998, based on the parties having lived apart for the required time period. Mr. Lanza has remained a State Farm agent after the divorce.

 

The parties were unable to reach an agreement as to the partition of community property, particularly as to whether the Agency managed by Mr. Lanza or any benefits derived therefrom are community property subject to partition. After a three-day trial, the trial court first found the Agency was “a non-entity” and therefore, “not a ‘thing’ which is subject to partition.”

 

The trial court then rendered judgment in favor of Mr. Lanza on March 7, 2003, with the decree “that the State Farm agency, including any income earned by Mr. Lanza after the filing of the Petition for Divorce, is not property subject to partition, nor is it community property to which [Ms. Coudrain] holds an ownership interest.”

 

The court of appeal affirmed the portion of the judgment that held that the Agency was a non-entity and not a “thing” under the Louisiana Civil Code subject to partition, but reversed the judgment with respect to whether “any income earned by Mr. Lanza after the filing of the Petition of Divorce” is property subject to partition or community property to which Ms. Coudrain holds an ownership interest, finding that Ms. Coudrain is entitled “to at least a portion of the renewal commissions from polices written during the existence of the community property regime.” Lanza v. Lanza, 03–1382 (La.App. 4 Cir. 4/28/04), 874 So.2d 890.

 

The case was remanded to determine the extent to which the renewal commissions are the result of Mr. Lanza's effort, skill, or industry during the existence of the community property regime. This court granted Ms. Coudrain’s writ application which assigns as error that the appellate court erred in affirming the trial court's determinations that the Agency is a non-entity and not a “thing” under the Louisiana Civil Code subject to partition and that the Agency was not community property in which Ms. Coudrain had an ownership interest. Lanza v. Lanza, 04–1314 (La.10/8/04), 883 So.2d 1025. We granted and consolidated Mr. Lanza's writ application which assigns as error that the appellate court erred in overruling the trial court's determination that Ms. Coudrain was not entitled to any income earned by Mr. Lanza after the filing of the Petition for Divorce. Lanza v. Lanza, 04–1756 (La.10/8/04), 883 So.2d 1024.

Issue: The issue is (1) whether a State Farm Agency is community property subject to partition and, if not, (2) whether an ex-spouse is entitled to any portion of renewal commissions or “service compensation” received by the insurance agent spouse after termination of the community on insurance policies written during the community.

Rule: In Due v. Due, this Court adopted this broad definition of “property” in the community property context, concluding that “property, in its broad sense, denotes all patrimonial rights” and that “the civil law concept of patrimony includes the total mass of existing or potential rights and liabilities attached to a person for the satisfaction of his economic needs.” 342 So.2d 161, 165 (La.1977) (citing Yiannopoulos, supra). Lanza v. Lanza, 2004-1314 (La. 3/2/05), 898 So. 2d 280, 282.

 

Whether an asset is “patrimonial” under the broad definition is not determinative, and the “decision to be made for a particular asset will be one that has to be determined in light of basic policies and problems related to how the asset functions and how it was produced.” Lanza v. Lanza, 2004-1314 (La. 3/2/05), 898 So. 2d 280, 283. While anything capable of pecuniary evaluation may be a patrimonial right, in order to be community property, “it must also be classified as community by the legislation ...” Lanza v. Lanza, 2004-1314 (La. 3/2/05), 898 So. 2d 280, 283.

 

The Civil Code defines community property as follows: The community property comprises property acquired during the existence of the legal regime through the effort, skill, or industry of either spouse; ... and all other property not classified by law as separate. Lanza v. Lanza, 2004-1314 (La. 3/2/05), 898 So. 2d 280, 290.

Analysis:  The court found that multiple factors mitigate against classifying the Agency as a community asset subject to partition. Pursuant to the agency agreement confected between Mr. Lanza and State Farm, Mr. Lanza has no ownership interest in the Agency.

 

Neither the State Farm Agent's Agreement nor any interest thereunder can be sold, assigned, or pledged by the State Farm agent. In addition, no right in any sum due or to become due to a State Farm agent can be sold, assigned, or pledged absent prior written consent of State Farm.

 

The agent owns no “book of business” which would become his upon termination of the Agency. In the event of the death, retirement, and/or termination of an agent, neither the agent nor his heirs receive service compensation for anything other than work performed up until the death, retirement, or termination of the agent.

 

All information provided to an agent during the course and scope of his term as a State Farm agent are trade secrets wholly owned by State Farm and are the sole and exclusive property of State Farm.  All monies collected by the agent, with the exception of service compensation received from State Farm, are the absolute property of State Farm.

 

Once an agent's relationship with State Farm ends, all clients, income, and information related to those clients are the property of State Farm. In the event an agent dies, retires, or is terminated, the entirety of the policies previously serviced by him would be transferred to another agent. The new agent would receive the service compensation for servicing those policies. The State Farm Agent Agreement can be terminated at will by either State Farm or the agent. At such time, any and all right to receive service compensation from State Farm ceases based on work performed to that date.

 

State Farm furnishes agents with manuals, forms, records and such other materials and supplies as State Farm deems advisable to provide and all such property remains the property of State Farm. Finally, State Farm retains the ultimate authority to prescribe all policy forms and provisions, to set the amount and determine premiums, fees, and charges, to determine the rules governing the policies, and governing the adjustment of payment of losses. Lanza v. Lanza, 2004-1314 (La. 3/2/05), 898 So. 2d 280, 284.

 

Based on the above factors, this court found that Mr. Lanza’s rights under the State Farm Agency Agreement do not constitute property rights in the community property law context. Thus, the court rejected Ms. Coudrain's argument that the trial court erred in finding that the Agency was a non-entity and not a “thing” subject to partition as the Agency does not meet even the broader definition of “patrimony.”

 

The court also rejected Ms. Coudrain’s argument that the Agency is a business that is not a legal entity, thus, it constitutes a community enterprise. Under La. C.C. art. 2369.3, “A spouse has a duty to preserve and to manage prudently former community property under his control, including a former community enterprise, in a manner consistent with the mode of use of that property immediately prior to termination of the community regime. He is answerable for any damage caused by his fault, default, or neglect. A community enterprise is a business that is not a legal entity.” The court found that this Civil Code article's definition of a community enterprise to include a business that is not a legal entity cannot be interpreted to bypass the traditional definition of property under the Louisiana Civil Code.

 

The community enterprise must still qualify as “property” under Louisiana's community property laws. Ms. Coudrain argues that Mr. Lanza is an independent contractor for State Farm and that she is entitled to the stream of income produced. The State Farm website clearly states that its agents are “independent contractor agents,” which it defines as “self-employed, eligible for benefit coverage at the expense of the agent and are paid commissions and service compensation from the products and services sold.” 

 

While Mr. Lanza may be an independent contractor, based on the factors discussed above, his rights as an independent contractor do not constitute property for community property purposes. Thus, the court found that the lower courts did not err in holding that the Agency is not community property subject to partition.

 

Ms. Coudrain argues that, if the Agency itself is not community property subject to partition, she is at least entitled to a portion of the income earned by Mr. Lanza after termination of the community under this Court's holding in Ross v. Ross, 02–2984 (La.10/21/03), 857 So.2d 384. She argues that Ross stands for the proposition that the policies are “things” capable of producing “fruits,” i.e., the renewal commissions, and she and Mr. Lanza are co-owners of these fruits under La. C.C. arts. 2369.1 and 2369.2.

 

Pursuant to these articles, Ms. Coudrain claims that the amount of labor expended by Mr. Lanza before and after termination of the community is irrelevant as they share equally these fruits. Mr. Lanza argues that the “service compensation” he received after termination of the community was based solely on post-community effort, skill and industry and is thus his separate property. Ms. Coudrain counters that even if the division of labor is relevant to this issue, Mr. Lanza's argument that he expended no community labor to generate these renewal commissions is incorrect.

 

In this case, the court of appeal interpreted Ross as holding that renewal commissions were civil fruits, and that, therefore, Ms. Lanza was entitled to a portion thereof. 874 So.2d at 892. Specifically, the court of appeal held that “the Ross Court determined that the renewal of a pre-existing State Farm insurance policy constitutes a juridical act and, thus, a thing under La. Civ.Code art. 551 from which civil fruits may be derived and that ‘if the renewal commissions are the result of the State Farm agent's effort, skill, or industry during the existence of the community property regime, the renewal commissions, or at least a portion thereof, are community property.’” 

 

Further, after rejecting Mr. Lanza's argument that he received only service compensation, and thus salary from State Farm, and not renewal commissions, because Ross “rejected the contention that renewal commissions could be deemed salary,” the court held that “to the extent that the standard State Farm contract may be interpreted to bypass basic concepts of Louisiana property law and the rights of spouses with regard to fruits under the Louisiana community property regime, it is against public policy and, therefore, unenforceable.” Lanza v. Lanza, 2004-1314 (La. 3/2/05), 898 So. 2d 280, 289.

 

This court affirmed the judgment of the court of appeals for different reasons. In Ross, the court held that renewal commissions paid pursuant to State Farm Agency contracts are community property, in whole or in part, depending on the extent they were earned as a result of the agent-spouse's effort, skill, or industry during the existence of the community property regime. This court determined that the same principles that determined the outcome in Ross are determinative here. Pursuant to Article 2338, community property comprises “property acquired during the existence of the legal regime through the effort, skill, or industry of either spouse,” and this includes the right to the payment of any compensation for work done during the community.

 

Therefore, to the extent that Mr. Lanza has received compensation after the community regime for work performed during the community, this compensation is community property. In this case, there is no presumption of community as in Ross regarding the renewal commissions because the income at issue did not come into Mr. Lanza's possession during the community regime. La. C.C. art. 2340.

 

While Ms. Coudrain's argument that a portion of this income was for work done during the existence of the community and thus constitutes “property acquired” during the community under La. C.C. art. 2338, the presumption of community found in La. C.C. art. 2340 applies only to “things in the possession of a spouse during the existence of community of acquets and gains ...” Therefore, Ms. Coundrain will have the burden of proving, by a preponderance of the evidence, which portion Mr. Lanza's post-community income resulted from policies initially issued during the community, and of those policies, how much of the resulting service compensation was due to Mr. Lanza's effort, skill, or industry exerted during the community.

Conclusion: The court held that due to the agency agreement confected between Mr. Lanza and State Farm, the Agency is not community property subject to partition because it does not constitute “property” under our community property laws. However, Ms. Coudrain is entitled to any portion of renewal commissions or “service compensation” received by Mr. Lanza after termination of the community on insurance policies written during the community that is due to Mr. Lanza's effort, skill, or industry during the community under La. C.C. art. 2338. The judgment of the court of appeal is affirmed and the matter is remanded to the trial court for further proceedings in accordance with this opinion.

Ross v. Ross, 835 So.2d 817 (La. Ct. App. 1st Cir. 2004).