Marriage of Bowles CA5 ( 2015 )

Filed 6/18/15 Marriage of Bowles CA5
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for
publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication
or ordered published for purposes of rule 8.1115.
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
FIFTH APPELLATE DISTRICT
In re the Marriage of CLARENCE WALTER
and PEARL CHRISTINE BOWLES.
Consolidated Cases Nos.
CLARENCE WALTER BOWLES, F066703 & F067739
Appellant, (Super. Ct. No. VFL234317)
v.
OPINION
PEARL CHRISTINE RIVERS,
Appellant.
In re the Marriage of CLARENCE WALTER
and PEARL CHRISTINE BOWLES.
CLARENCE WALTER BOWLES, Consolidated Cases Nos.
F067739 & F068686
Appellant,
(Super. Ct. No. VFL234317)
v.
PEARL CHRISTINE RIVERS,
Respondent.
APPEAL from a judgment of the Superior Court of Tulare County. Bret D.
Hillman, Judge.
Harbottle Law Firm and C. D. Harbottle; McCormick, Barstow, Sheppard, Wayte
& Carruth and Todd W. Baxter for Appellant Clarence Walter Bowles.
Dowling Aaron and Stephanie Hamilton Borchers for Appellant and Respondent
Pearl Christine Rivers.
-ooOoo-
This is a consolidated appeal from the January 8, July 11, and October 24, 2013,
orders of the Superior Court of Tulare County. On September 17, 2009, in contemplation
of divorce, Clarence Walter Bowles (Walter) and Pearl Christine Rivers (Christine)1
entered into a mediated marital settlement agreement (MSA). A judgment of dissolution
incorporating the MSA was entered on November 6, 2009, and the parties’ marriage
terminated on March 11, 2010. On October 26, 2011, Christine, who subsequently
remarried, moved to set aside the property division component of the dissolution
judgment and MSA pursuant to Family Code sections 2121 and 2122.2 She alleged, inter
alia, that Walter failed to comply with the disclosure requirements of section 2100 et seq.
On January 8, 2013, the superior court granted the motion and awarded Christine $80,000
in attorney’s fees and $32,000 in costs pursuant to sections 2030 and 2032. In its
statement of decision, the court found, inter alia, that Walter (1) did not serve a
preliminary disclosure declaration; (2) breached his fiduciary duty under section 721 by
failing to disclose an asset, i.e., the Mendonca Note (at p. 7 & fn. 9, post); (3) “obtained
1 Customarily, in family law proceedings, we refer to the parties by their first names
for purposes of clarity and not out of disrespect. (Rubenstein v. Rubenstein (2000) 81
Cal. App. 4th 1131, 1136, fn. 1.) However, the record here typically identifies the parties
as “Walter” and “Christine” rather than “Clarence” and “Pearl.” To maintain
consistency, we shall also use “Walter” and “Christine.”
2 Unless indicated otherwise, subsequent statutory citations refer to the Family
Code.
2.
more valuable assets” than Christine under the MSA, including “most of the active
farming entities and working petroleum interests”; (4) “did not pay his taxes properly,”
given that he “lost … hundreds of thousands of dollars … annually and still kept
increasing … cash and assets”; (5) sold oil and gas interests for over $800,000 in 2011,
“received and reinvested the proceeds from those sales in real estate in 2011,” and tried to
“avoid paying the taxes until 2012 through some sort of escrow arrangement”; and (6)
submitted “incomplete,” “unreasonably late,” “unorganized,” “duplicative,” and
“redacted” financial documents in response to discovery orders.
Walter filed a timely appeal.3 In his opening brief, he concedes that he never
served a preliminary disclosure declaration and the MSA excluded the Mendonca Note.
Nonetheless, he argues Christine’s set-aside motion was untimely; his noncompliance
with the disclosure requirements did not constitute prejudicial error; and the trial court
erroneously barred the mediator as a witness and awarded attorney’s fees and costs. In
his reply brief, Walter adds that his noncompliance was permissible under In re Marriage
of Woolsey (2013) 220 Cal. App. 4th 881 (Woolsey) and In re Marriage of Evans (2014)
229 Cal. App. 4th 374 (Evans).
Meanwhile, Christine requested attorney’s fees to defend against Walter’s appeal
from the January 8, 2013, order. On July 11, 2013, the trial court awarded her $50,000
pursuant to sections 2030 and 2032. Christine then asked for costs associated with the
enforcement of the January 8, 2013, award as well as attorney’s fees to file an
extraordinary writ petition on the issue of whether a need-based attorney’s fees and costs
award in a family law proceeding may be bonded and stayed on appeal. On October 24,
2013, the court awarded her $10,000 in costs and $20,000 in attorney’s fees pursuant to
sections 2030 and 2032.4
3 Christine filed a protective cross-appeal.
4 This court summarily denied the extraordinary writ petition on December 11,
2013, in case No. F068258.
3.
Walter filed another timely appeal, this time from the July 11 and October 24,
2013, orders.5 Walter makes several contentions. First, the awards were not just and
reasonable under the relative circumstances of the parties. Second, the October 24, 2013,
award of costs should not have been granted since Walter was in the process of filing an
undertaking. Third, the October 24, 2013, award of attorney’s fees was “contrary to the
stated purpose of need based fees.”
As to the January 8, 2013, order, we find Walter breached his fiduciary duty to
disclose all assets in which he had or may have had an interest by failing to disclose the
Mendonca Note; Christine discovered the breach less than a year before she filed her set-
aside motion; and Walter’s nondisclosure materially affected the judgment.6 We also
find the trial court did not abuse its discretion either when it barred the mediator as a
5 By order dated May 13, 2015, we consolidated the appeals in cases Nos. F066703
and F067739. (In an order dated Feb. 11, 2014, case No. F068686 was consolidated with
case No. F067739.)
6 Walter contends on appeal that the set-aside motion was untimely because
Christine first discovered his failure to complete and exchange the preliminary disclosure
declaration on September 17, 2009, more than two years before she filed the motion. “If
correct upon any theory of law applicable to the case, the judgment will be sustained
regardless of the considerations that moved the lower court to its conclusion.” (Belair v.
Riverside County Flood Control Dist. (1988) 47 Cal. 3d 550, 568; accord, D’Amico v.
Board of Medical Examiners (1974) 11 Cal. 3d 1, 18-19; Davey v. Southern Pacific Co.
(1897) 116 Cal. 325, 329.) Since we find the court’s ruling correct on a different premise
(i.e., Christine discovered Walter’s failure to disclose the Mendonca Note within the
limitations period), we need not address whether Christine timely discovered Walter’s
other breach of fiduciary duty (i.e., the failure to complete and exchange a preliminary
disclosure declaration). To the extent Walter argues Woolsey and Evans are relevant to
his failure to disclose, we disagree. Woolsey did not extinguish the disclosure
requirements, but only relaxed the statutory obligation to exchange preliminary and final
disclosure declarations before the parties enter into a mediated MSA. Evans did not
depart from the mandate that preliminary disclosure declarations be served with, or
subsequent to, the filing of the petition for dissolution. The MSA in this case, contrary to
the situation in Evans, was signed more than one week after the petition for dissolution
was filed.
4.
witness or when it awarded attorney’s fees and costs.7 As to the July 11 and October 24,
2013, orders, we reject Walter’s contentions and affirm.8
FACTUAL AND PROCEDURAL HISTORY
I. The dissolution proceeding.
Walter and Christine married on October 27, 1979, and separated on June 1, 2009.
Walter filed a petition for dissolution of marriage on September 9, 2009. On
September 17, 2009, the parties signed a mediated MSA. Paragraph IV. (Division of
Property) of the agreement identified certain assets—e.g., oil interests, real estate, bank
accounts, cattle, hay, personal effects—and described their distribution. Paragraph IX.
(Waiver of Filing of Final Declaration of Disclosure) declared that Walter and Christine
“completed and exchanged preliminary disclosure declarations” and “knowingly,
intelligently, and voluntarily” “waive[d] the exchange of final declarations of disclosure
pursuant to … [s]ection 2105.” Paragraph X. (Warranties and Covenants) assured that
neither person “own[ed] any property of any kind, other than the property listed in
[Paragraph IV.].” Paragraph XIX. (Legal Representation) indicated that Walter and
7 Because we affirm the January 8, 2013, order, we dismiss the cross-appeal as
moot. (Najera v. Huerta (2011) 191 Cal. App. 4th 872, 874, 880.)
8 In a respondent’s brief filed June 2, 2014, Christine asked us to “resolve the open
question of whether … section 2030 need based fees can be stayed pending appeal.” In a
reply brief filed August 22, 2014, Walter asserted, inter alia, that this issue was not
properly before us. Effective January 1, 2015, section 917.75 of the Code of Civil
Procedure states:
“The perfecting of an appeal shall not stay enforcement of the judgment or
order of the trial court awarding attorney’s fees or costs, or both, if the
judgment or order appealed from was rendered in a proceeding under the
Family Code, unless an undertaking is given in a sum and upon conditions
fixed by the trial court.”
In view of this provision, Christine informed us in a written correspondence filed
January 30, 2015, that she “no longer requests additional examination” of the matter “in
the interest of judicial economy.” We consider the issue withdrawn.
5.
Christine (1) retained Stanley M. Michner to mediate the settlement and draft the MSA;
(2) were advised of and waived their respective rights to independent counsel; (3) “freely
and voluntarily entered into this [MSA] with full knowledge of its terms and legal
effects”; and (4) “agreed to this [MSA] without requiring … Michner to obtain appraisals
of [sic] independent investigations as to any community assets and hold[] [him] harmless
thereon.”
Walter and Christine also signed a “Stipulation and Waiver of Final Declaration of
Disclosure.” (Some capitalization omitted.) The document read:
“1. Under … section 2105[, subdivision ](d), the parties agree to waive
the requirements of … section 2105[, subdivision ](a) concerning the
final declaration of disclosure.
“2. The parties agree as follows:
“a. We have complied with … section 2104, and the preliminary
declarations of disclosure have been completed and
exchanged.
“b. We have completed and exchanged a current Income and
Expense Declaration … that includes all material facts and
information on each party’s earnings, accumulations, and
expenses.
“c. We have fully complied with … section 2102 and have fully
augmented the preliminary declarations of disclosure,
including disclosure of all material facts and information on
[¶] (1) the characterization of all assets and liabilities, [¶]
(2) the valuation of all assets that are community property or
in which the community has an interest, and [¶] (3) the
amounts of all community debts and obligations.
“d. Each of the parties enters into this waiver knowingly,
intelligently, and voluntarily.
“e. Each party understands that this waiver does not limit the
legal disclosure obligations of the parties but rather is a
statement under penalty of perjury that those obligations have
been fulfilled.
6.
“f. The parties also understand that if they do not comply with
these obligations, the court will set aside the judgment.”
A judgment of dissolution incorporating the MSA was entered on November 6,
2009. Walter and Christine’s marriage terminated on March 11, 2010. Christine
remarried on December 31, 2010, and relocated to Kansas.
II. Christine’s set-aside motion.
On October 26, 2011, Christine moved to set aside the property division
component of the November 6, 2009, dissolution judgment and MSA, citing Walter’s
failure to comply with the statutory disclosure requirements, inter alia. An accompanying
memorandum of points and authorities specified:
“On or about April 18, 2011, in connection with a motion to secure
compliance with the terms of the Judgment filed on November 6, 2009,
[Christine]’s attorney conducted a records search in the Tulare County
Recorder’s Office. During that search, [Christine]’s attorney discovered
[Walter] owner-financed the sale of a piece of property to Jacob A.
Mendonca and Andrea Lowry Mendonca in the amount of $200,000.00.
The Mendoncas executed a Promissory Note,[9] secured by the property,
and agreed to pay [Walter] monthly payments on the Note until it was paid
in full. [Christine] did not recall this transaction until it was brought up to
her by her attorney.”
“[Walter] warranted to [Christine] that [certain] assets were the only
properties in which he had an interest by way of Paragraph X of the [MSA]
at the time the parties signed the Agreement. Nowhere was any mention
made of [the Mendonca] Note in the amount of $200,000.00. [¶] … [¶]
“… [Walter] never served [Christine] with a Preliminary Declaration
of Disclosure or an Income and Expense Declaration, nor was [Christine]
ever informed of her and [Walter]’s obligations to prepare and serve such
disclosure declarations; [Christine] learned of the mandatory disclosure
rules only after meeting with her attorney on April 4, 2011.
“While the Family Code permits the parties to waive service of the
Final Declaration of Disclosure, which the parties did in the instant case,
9 Hereafter, we identify the promissory note as either “Note” or “Mendonca Note.”
7.
there is no such provision permitting the parties to waive preparation and
service of the Preliminary Declaration of Disclosure.
“[Christine] relied on the warranties made by [Walter] regarding the
assets and liabilities of the parties as set forth in Paragraph IV of the
[MSA]. [Christine] was unaware of the $200,000.00 [Mendonca] Note that
[Walter] failed to disclose; had he done so, she would not have agreed to
him receiving 100% of same.
“… Section 2122[, subdivision ](f) permits the trial court to set aside
a Judgment based on a failure to comply with the disclosure requirements
of … [s]ection 2100 et seq. so long as the motion is brought within one year
after the complaining party either discovered, or should have discovered,
the failure to comply. [Christine] learned of [Walter]’s failure to comply
with the disclosure requirement on April 4, 2011; this motion is therefore
timely.”
Christine requested an order compelling Walter to pay for her attorney’s fees “based
upon the substantial disparity of income between [them].”
In response, Walter maintained that Christine knew or should have known about
the Mendonca Note because they (1) received monthly payments from the Mendoncas
since 2003; (2) reported interest on the Note on their joint tax returns; (3) talked about the
Note in the course of mediation; and (4) reached a postmediation agreement that allowed
him to keep the Note. He further contended that Christine filed an untimely set-aside
motion and did not establish prejudice.
III. Matters preceding the hearing on the set-aside motion.
a. Walter’s noncompliance with discovery orders.
At an October 19, 2012, hearing, the superior court found that Walter did not fully
comply with at least six separate discovery orders. In particular, he either failed to
deliver documents or “slopp[il]y” delivered partial, incomplete, and/or redacted
documents related to his income taxes, bank accounts, and oil and gas interests. The
court ordered Walter to produce the appropriate paperwork.
8.
b. The mediation privilege.
Walter sought to depose Michner regarding “a number of things which he said
occurred during his various meetings with the parties to this action back in 2009 ….” In
a November 9, 2012, letter, Michner asserted the mediation privilege pursuant to
Evidence Code section 1115 et seq., but agreed to testify if both parties waived
confidentiality. In a November 9, 2012, facsimile to Walter, Christine refused to waive
confidentiality. Walter asked the court to address the applicability of Evidence Code
section 1115 et seq.
On December 11, 2012, prior to the start of the motion hearing, the court ruled that
the mediation privilege applied:
“The retainer agreement refers to Mr. Michner as being retained as a
mediator. He acted in this case as a mediator, he is referred to by both
parties in pleadings as a mediator. The [MSA] refers to him as a mediator
and then the question becomes, did he waive that privilege? [¶] It appears
clear from his correspondence he is asserting that privilege pursuant to his
letter and his refusal to be d[e]posed. [¶] … So no, I am not going to have
Mr. Michner as a witness.”
The court subsequently denied Walter’s request to have Michner testify as to “his normal
procedures … when he is mediating cases,” “whether or not he observed any tension …
between the parties,” and “whether or not he met with either party outside the presence of
the other.”
c. Income and expense declarations.
In her income and expense declaration filed December 7, 2012, Christine related
that she owned and managed a flower shop, but did not earn a salary. She received
monthly payments of $725 from rental properties and $6,000 from royalty and overriding
royalty interests. Christine’s liquid assets were worth $22,500. All other property—real
and personal—was worth $120,000.10 Christine estimated that her monthly expenditures
10 At the motion hearing, Christine testified that an earlier income and expense
declaration listed the value of her liquid assets as $120,000. She used $89,000 to
9.
totaled $12,773. Her husband, Douglas Rivers, earned $13,500 per month and paid some
of the household expenses. For the set-aside action, Christine retained two attorneys:
Michael Hatherley and Michael Hepperly. Each charged $250 per hour. As of
December 6, 2012, Christine paid them a total of $79,239.80, which came from personal
savings, home equity credit lines, and other loans. She still owed Hatherley $9,042.01.
In his income and expense declaration filed December 10, 2012, Walter related
that he earned $14,111.11 per month as a farmer and $585.58 per month as an owner of
working interests in oil. He also received monthly payments of $512.09 from dividends
and interests, $958.34 from rental properties, $11,324.59 from capital gains, and
$1,067.50 from Social Security’s retirement fund. Walter’s assets were worth an
estimated $1.4 million. His actual monthly expenditures amounted to $9,258. Walter’s
disabled adult daughter, who lived with him and earned a gross monthly income of
$839.66, did not pay for any of the household expenses. For the set-aside action, Walter
hired attorney C. D. Harbottle, who charged $280 per hour. As of December 10, 2012, he
paid Harbottle $60,867.78, but still owed her $19,922.42.
In a declaration dated December 10, 2012, Hatherley attested:
“In preparing for the hearing[] on the [set-aside motion], I have propounded
discovery on [Walter]. [Walter] failed to provide the discovery requested
of him, thereby forcing [Christine] to file a motion to compel his answers to
discovery, along with discovery sanctions. Even after the court ordered
[Walter] to produce documents at the September 24, 2012, hearing,
[Walter] did not. [Christine] was forced to file an ex parte hearing to secure
[Walter]’s compliance with this court’s prior order. Even then [Walter],
and despite the court’s emphatically clear and precise orders, [Walter] was
late in providing the documents. To make matters worse, [Walter]
unnecessarily duplicated previously produced documents or produced the
same documents twice within production, which caused [Christine] to incur
even more fees. [Walter]’s pervasive insistence to delay, hinder, and evade
has caused this case to literally balloon in fees and costs to my client.
purchase one of four royalty interests, which contributed to an increase in her monthly
income.
10.
“… Further, due to the fact that these parties to this action own
assets in three different states, and [Walter] did not provide responses to
discovery made of him, it was necessary to employ the services of
[Hepperly,] an attorney in the state of Kansas, the state in which most of the
parties’ assets are located, to locate and identify such assets not disclosed
by [Walter].
“… When [Christine] first hired this law firm, I would have
estimated her entire case would have cost no more than $10,000.00. Due to
[Walter]’s unwillingness to comply with any discovery, delay in providing
documents as ordered by this court on not less than two occasions, and the
active concealment of community property assets, the fees and costs
associated with this matter has vastly exceeded my initial reasonable
estimation of cost.”
IV. The hearing on the set-aside motion.
a. Christine’s testimony.
Christine testified that she and Walter were married for 30 years. During this
period, Walter undertook several business ventures. He farmed various crops, purchased,
refurbished, and resold farm implements, and purchased, developed, and resold land.
Starting in early 2000, Walter acquired working, mineral, royalty, and overriding royalty
interests in oil. Christine sometimes accompanied him to oil production auctions in
Kansas, but her understanding of the oil interests was limited to “what [he] told [her].”
Although she wanted to learn more about the business ventures, Walter refused to teach
her. Christine did not examine the bank accounts or attempt to “understand … the
financial flow” because Walter “took care of it.” They met with their accountant and
signed joint tax returns annually, but she never reviewed the returns.
Prior to and during the marriage, Christine owned and managed a flower shop.
While the shop had been unprofitable since 2001, she kept it open because Walter
“wanted it for a loss write off.” Between 2001 and 2009, Christine received her income
from royalty and overriding royalty interests.
In 2009, the parties decided to divorce, negotiated the division of property,
participated in mediation, and signed the MSA and stipulated waiver. They did not
11.
exchange preliminary disclosure declarations, income and expense declarations, or
schedules of assets and debts. Instead, Walter “said what the values of everything were
and how he valued them ….” Christine did not retain an attorney during this process
because (1) Walter “told [her] it would cost $50,000”; and (2) she “[t]otally” trusted him.
At this point, she did not remember the Mendonca Note, which was left off the MSA.11
On April 4, 2011, following a dispute with Walter over the distribution of assets,
Christine consulted Hatherley. Later that month, Hatherley searched the public records
and came across the Mendonca Note. In June 2011, Christine discovered that Walter sold
an oil well—which he had appraised at under $200,000 at the time of mediation and
received in accordance with the MSA—for $775,000.
b. Walter’s testimony.
Walter testified that Christine was involved “[t]o a degree” in the business
ventures. When he first began to acquire oil interests, she often accompanied him to
auctions and occasionally signed the paperwork. The two always discussed real estate
transactions and met with their accountant together.12 In addition, Christine had access
to records and bank accounts. Walter never intentionally withheld information.
In 2009, Walter and Christine spoke at length about the division of property. They
agreed to appraise (1) the oil interests based on their respective purchase prices; and (2)
real property based on tax statements from the Tulare County Assessor’s Office. Walter
negotiated in good faith and did not intend to deceive Christine. Lists specifying the
distribution of assets were given to Michner. Walter did not know the meaning of the
11 Christine testified that she had known of the Mendonca Note’s existence “at one
time,” acknowledging that she “sign[ed] some papers” and Jacob Mendonca occasionally
visited her shop to deliver payments.
12 Tim Denton, Walter and Christine’s accountant, testified that he prepared the
parties’ tax returns annually. At face-to-face meetings, (1) Christine appeared to be an
“informed participant”; (2) Walter spoke openly in Christine’s presence; and (3) Walter
and Christine had the opportunity review the returns before they were filed.
12.
terms “preliminary declaration of disclosure” or “final declaration of disclosure,” but
believed that Michner properly completed the necessary documentation.
Walter conceded that the Mendonca Note was not mentioned in the MSA. He
remained unaware of this exclusion until Christine notified him. Sometime after entry of
the dissolution judgment, the two reached a separate agreement on the Mendonca Note.
In exchange for surrendering her stake in the Note, Christine received extra cattle and
hay. Walter added that Christine was involved in the original real estate transaction with
the Mendoncas “document-wise and price-wise.”
In June 2011, Walter sold two oil producing properties. The first, called “Dreiling
C,” was originally purchased for $7,000 and sold for $90,000. The second, known as “JF
Dreiling,” was originally purchased for $75,000 and sold for $775,000. In the interim,
Walter spent $270,000 to drill a new well at Dreiling C and over $300,000 on
“breakdowns and equipment” at JF Dreiling. He deposited the net sales proceeds—i.e.,
$827,387.02—into his bank account on July 1, 2011. Thereafter, between July 27, 2011,
and July 19, 2012, Walter acquired at least five new properties. He did “[n]ot
necessarily” use the Dreiling C and JF Dreiling sales proceeds to finance these purchases.
Walter did not originally report the Dreiling C and JF Dreiling sales proceeds on
his 2011 tax return. He claimed that—on the advice of his accountant—he opened a six-
month escrow account to defer this income until 2012. The funds, however, were
mistakenly transferred in December 2011 rather than January 2012. Walter filed an
amended 2011 tax return and paid taxes, penalties, and interest. He did not intend to
commit tax evasion or defraud the government.
Walter’s past income tax returns showed significant losses. When asked by the
court how he could “los[e] money every year on [his] tax return” but still “afford to buy
all these oil interests and farms and things,” he replied that (1) he “sold a piece of
property in Hanford for a million and two”; and (2) “the oil business has a depreciation
13.
amount,” meaning he could “make a small amount and still show a loss on the adjusted
gross.”
c. Christine’s expert witnesses.
Kenton Hupp, a petroleum engineer, assessed the oil interests identified in the
MSA. As of November 6, 2009, Christine’s interests were worth “a little over $170,000”
while Walter’s were worth “a little over $1.8 million.” Hupp’s valuation method was
based on projected revenue and expenses.
Thomas Luhrs, a farmer and professional real estate appraiser, assessed the three
160-acre farms in Kansas given to Walter in accordance with the MSA. He opined that
the market value of these farms appreciated from $404,000 as of November 6, 2009, to
$912,000 as of October 18, 2012. Timothy Simon, a certified general real estate
appraiser, assessed the California real estate identified in the MSA. As of September 17,
2009, Christine’s properties were worth $492,000 while Walter’s were worth
$1,109,000.13 Both Luhrs and Simon employed the sales comparison approach.14
V. The January 8, 2013, ruling on the set-aside motion.
In a statement of decision filed on January 8, 2013, the court granted Christine’s
motion “based upon the grounds of failure of the parties to comply with the mandatory
disclosure requirements ….”15 The court detailed:
13 Simon also assessed and assigned a market value of $492,000 to a residence
belonging to Christine that was not listed in the MSA.
14 Under the sales comparison approach, the market value of an appraised property is
determined by comparing the appraised property with others in the vicinity that possess
similar characteristics and have been sold.
15 The court qualified its ruling:
“Pursuant to [section] 2125, the court does not find that the division of
household goods and furniture, personal effects, farm equipment, clothing,
vehicles and silver to be materially affected by the circumstances leading to
the court’s decision to grant relief. The division of those assets shall stand
as previously ordered or agreed and divided by the parties…. The
inequality of the division of the parties’ bank assets, notes, oil, gas and
14.
“The parties agreed at the time of the hearing in this matter that no
preliminary disclosure declarations or income and expense declarations had
been exchanged. In hearing this matter, the court was struck many times by
the fact that this is the type of action that [section 2100 et seq.] was enacted
to prevent. [Section] 2100 requires each party to accurately and completely
disclose all assets and liabilities in which the party has or may have an
interest or obligation. Each party has a continuing duty immediately, fully
and accurately to update and augment that disclosure. All parties agree that
this was never done.
“The legislative intent is made clear in section 2100, as the statute
reads that the ‘Legislature finds and declares’ that ‘[s]ound public policy
further favors the reduction of the adversarial nature of marital dissolution
and the attendant costs by fostering full disclosure and cooperative
discovery’ and that ‘[i]n order to promote this public policy, a full and
accurate disclosure of all assets and liabilities in which one or both parties
have or may have an interest must be made in the early stages of a
proceeding for dissolution of marriage … regardless of [the asset’s]
characterization as community or separate.’
“[Section] 2122 lists six grounds upon which a motion to set aside a
judgment can be based. The list includes the failure of a spouse to comply
with disclosure requirements. In this matter everyone agrees that the
disclosure requirements were not complied with. [Section 2122,
subdivision ](f) provides that a proceeding to set aside the judgment based
on non-disclosure must be commenced within one year of the date the
complaining party discovered or should have discovered the failure to
comply with the statute. Both parties were unaware of their obligations to
comply with these statutes until they met with their current counsel in 2011,
so the request for relief filed in late 2011 was timely.
“The court finds that the division of marital assets was substantially
unequal. The court finds that the grounds for relief materially affected the
outcome and that the moving party would benefit from granting of the relief
prayed for in the motions before the court. Pursuant to [section] 2123 a
judgment may not be set aside under section 2122, or under any other law,
‘simply because the court finds that it was inequitable when made, nor
simply because subsequent circumstances caused the division of assets or
liabilities to become inequitable, or the support to become inadequate.’
[Citation.] In this case the failure to complete the disclosure declaration is
mineral interests, real property and business, ranching and farming assets
were of primary importance to the court.”
15.
the key factor in the court’s decision, not simply the inequality of the
property division.
“… Walt[er] argues that ... the parties negotiated extensively, met
with their tax accountant together every year, signed joint tax returns and
that each had access to bank records. He feels these facts should take the
place of the statutory requirement for a preliminary declaration of
disclosure. He argues that the parties would likely have reached the same
agreement had the mediator prepared the necessary disclosure documents.
“The court knows of no authority which allows it to follow those
arguments to the desired conclusion. Walt[er] has cited no law supporting
this de facto waiver, contrary to the provisions of [section] 2104, which
allows no such waiver absent court order. No case cited by the parties
holds that the court can find such a waiver of the preliminary disclosure
declaration. Pursuant to that section the declaration of disclosure is to, ‘set
forth with sufficient particularity, that a person of reasonable and ordinary
intelligence can ascertain,’ the identity of all assets and liabilities of the
parties. The court is not going to speculate what that disclosure declaration
and income declaration might have looked like if they had been prepared as
required by the Family Code. [¶] … [¶]
“It is clear to the court that Walt[er] did not pay his taxes properly.
He brought most of the information to the accountant and the parties could
not have lost the hundreds of thousands of dollars they claimed to lose
annually and still kept increasing their cash and assets. Walt[er] admitted
to selling oil and gas interests and receiving sales proceeds of over
$800,000 in 2011 that were not included in his 2011 tax return. He testified
that he thought he could avoid paying the taxes until 2012 through some
sort of escrow arrangement, but he admitted he received and reinvested the
proceeds from those sales in real estate in 2011….
“Overall, the court finds that the negotiations and preparation of the
[MSA] were a haphazard process. This was true of the work presented to
the mediator to be included in the [MSA] …. By retaining most of the
active farming entities and working petroleum interests Walt[er] obtained
more valuable assets ….”
“[A] clear breach of the fiduciary duty was the Mendonca Note.
Even if that [N]ote was forgotten by Christine and omitted in the parties’
settlement negotiations, Walt[er] knew of its existence as he continued to
receive the monthly payment until the [N]ote was paid off. He argues that
the proceeds of the [N]ote were subject to an agreement to trade the [N]ote
proceeds for hay and cattle received by Christine, a contention she denies.
16.
No documents substantiate this alleged later agreement regarding the [N]ote
proceeds. Walt[er] had a continuing duty to disclose and divide that asset,
which he failed to do…. The court finds this to be a breach by Walt[er] of
his fiduciary duties under [section] 721….”
The court awarded Christine attorney’s fees and costs:
“Each party has incurred substantial attorney’s fees in this matter.
Walt[er] had incurred fees of approximately $60,000 prior to the hearing on
this matter. Christine had incurred fees and costs of over $160,000. Each
side was represented by able and experienced counsel, but the court finds
that it was not necessary for Christine to hire two (2) attorneys to represent
her in this matter. The Hatherley firm should not have had nine separate
time keepers billing to the file. There were excessive charges for staff time
for filing, file maintenance, processing e-mails, scanning, binder creation
and attorneys working with staff…. [Walter’s] responses to discovery were
incomplete and unreasonably late. The production of documents was
unorganized, duplicative and some tax documents appeared initially to have
been redacted. The parties expended significant time and effort on routine
discovery matters which should have involved minimal fees. This was
mostly due to Walt[er]’s failure to properly respond to discovery.
“The court has also taken into account … fees related to the failure
to properly disclose the Mendonca [N]ote …. Christine spent on appraisers
for this motion as much as would have been required if the matter had
proceeded to trial. This post-judgment motion, which was estimated for a
half-day hearing, took seven days using all the court’s available time
outside of its normal calendar. Christine could have saved an enormous
amount of fees and costs had she sought a bifurcated hearing dealing with
the failure to comply with the disclosure requirements.
“The court has reviewed the fee declaration filed by Christine and
considered the arguments and filings of the parties on this issue. The court
has considered the incomes of the parties and finds there is a significant
income disparity, though Christine also has substantial personal and
household income. The court has considered the requirements of …
[sections] 1101[, subdivision ](g), 6344,[16] 2030, 2032, 4320 and [Code of
Civil Procedure section] 2023.030 and awards attorney’s fees to Christine
payable forthwith by Walt[er] in the amount of $80,000 and costs of
$32,000.”
16 Walter requested a domestic violence restraining order, but withdrew the request
at the time of the motion hearing.
17.
VI. Christine’s first motion after the January 8, 2013, order.
In March 2013, Christine filed a motion for the immediate payment of the
January 8, 2013, attorney’s fees and costs award. She argued that an order was
appropriate because (1) Walter did not post an undertaking pursuant to Code of Civil
Procedure section 917.1, subdivision (a)(1); and (2) notwithstanding an undertaking, a
need-based award under sections 2030 and 2032 must be given during the pendency of an
appeal. Walter countered that (1) the superior court only awarded costs under Code of
Civil Procedure section 1021 et seq., the payment of which was automatically stayed on
appeal; and (2) if the payment was not automatically stayed on appeal, he may
nonetheless post an undertaking.
On May 6, 2013, the court ruled that an undertaking would stay the execution of a
need-based attorney’s fees and costs award:
“This is not an award of routine costs under [Code of Civil
Procedure s]ection 1021. As such the award is an order requiring the
payment of money. Enforcement of the order can be stayed only by the
posting of security. [(Code Civ. Proc., §] 917.1.[)] The amount of security
is specified by statute at twice the amount of the order or if through a surety
insurer, one and one-half times the ordered amount. [(Id., subd. ](b).[)]
“There appears to be no appellate decision directly on point
regarding stay on appeal of attorney[’s] fees awarded under [section] 2030.
However, appellate courts have found that awards for payment of spousal
and child support are orders for the payment of money to which [Code of
Civil Procedure section] 917.1 has been held applicable. [(]Smith v. Smith
(1927) 201 Cal. 217.[)] The court finds the subject attorney[’s] fee[s]
award analogous and that [Code of Civil Procedure section] 917.1 applies.
Payment of the fees will be stayed upon posting the appropriate bond.”
Walter did not appeal the May 6, 2013, order. On July 30, 2013, he filed an
undertaking for appeal from the January 8, 2013, order.
VII. Christine’s second motion after the January 8, 2013, order.
In April 2013, Christine requested $70,000 in attorney’s fees to defend against
Walter’s appeal from the January 8, 2013, order. In an income and expense declaration
18.
filed April 25, 2013, she again related that she owned and managed a flower shop, but did
not earn a salary. Christine received average monthly payments of $725 from rental
properties and $4,680.50 from royalty and overriding royalty interests. Her liquid assets
and real property were worth $39,804.49 and $904,500, respectively. Christine estimated
that her average monthly expenditures amounted to $10,620, approximately $2,000 of
which went toward her legal expenses. Her husband, Douglas Rivers, earned $11,100 per
month and paid for some of the household expenses. In addition to the two attorneys she
hired for the set-aside motion, Christine hired Stephanie Borchers for the appeal.
Borchers charged $350 per hour.17 As of April 23, 2013, Christine paid them
$296,841.09. $28,544.13 of that sum went to Borchers, who was still owed another
$7,534.13. In order to finance her legal team, Christine utilized her personal savings as
well as credit cards and home equity credit lines, incurring $176,491.16 in debt.
In a separate declaration filed April 25, 2013, Christine asserted:
“5. I do not have the resources to pay for an appellate attorney in
addition to paying back the credit card and other debt my husband and I
have incurred in order to pay the previous approximately $300,000.00 in
fees. I believe Walter has more than adequate financial resources to be able
to pay both his own and my fees on appeal. [¶] … [¶]
“7. As reflected in my Income and Expense Declaration, my
floral shop business does not generate an income for me. Other than this
business, I have not been employed outside the home since about 1982.
“8. The properties that I own in California that are unencumbered
generate only enough income to pay the mortgage on the 15 acres that were
awarded to me in the [MSA].
“9. I have exhausted my husband’s savings in paying for this
litigation….”
17 At some point, Borchers increased her rate to $365 per hour.
19.
Christine’s Schedule K-1 (Form 1120S) 2012 showed an ordinary business income
of $19,701. Her and Douglas’s 2012 Federal Depreciation Schedule listed a grand total
depreciable basis of $457,936 with regard to oil and gas royalties and cattle.
Walter opposed the motion. In an income and expense declaration filed May 8,
2013, he related that he earned $8,268.18 per month as a farmer and $4,257.59 per month
as an owner of oil working interests. Walter also received monthly payments of $39.59
from dividends and interests, $3,176.50 from rental properties, $794.50 from royalties,
and $1,124.90 from Social Security. His assets were worth an estimated $1.4 million.
Walter’s monthly expenditures amounted to $4,447.17. In addition to the attorney he
hired for the set-aside action (Harbottle), Walter hired Todd Baxter for the appeal.
Baxter charged a $25,000 retainer fee. As of May 7, 2013, Walter paid Harbottle
$105,817.78, which came from his earnings and a life insurance policy cash-out. He still
owed her $38,881.
In a separate declaration dated May 7, 2013, Walter stated:
“2. I contend that I am unable to pay my own fees, let alone those
incurred by Christine. In fact, I was forced to cash out my life insurance
policy in order to pay some, but not all of the fees incurred to the Harbottle
Law Firm in connection with the underlying Motion to Set Aside Judgment
which gives rise to the appeal. I still owe the Harbottle Law Firm
approximately $38,000. In addition, I now have to pay an appellate
attorney [Todd Baxter]. Attorney Baxter advised that he charges a
MANDATORY retainer of $25,000 which is normally due and payable up
front. Although he agreed to allow me to pay $15,000 up front, and gave
me two (2) months to pay the remaining $10,000, to date I have only been
able to pay an additional $4,000. I do not have any stockpile of cash lying
around with which to pay attorney[’]s fees and I am no more able to pay
attorney[’]s fees than is Christine. In fact, Christine has far more money
than I do available to her to pay attorney[’]s fees…. [¶] … [¶]
“4. Unlike my income, which is speculative at best, and requires me
to put most of the income generated back into the asset (I received working
interests and orange groves in the divorce which must be maintained as
active businesses in order to generate my income whatsoever and still
involve a significant risk of loss …) Christine’s assets do not require any
20.
outlay of cash. Instead, she receives a check each month or quarter without
doing anything whatsoever and more importantly without putting any
money back into her assets…. Christine is also remarried to a man who,
according to … Christine’s Income and Expense Declaration filed on or
about April 23, 2013, … earns $11,000 per month…. [T]his is a stable and
significant amount of income which is more than I earn. Moreover, I am
forced to wait until the end of the year to determine my earnings, whereas
Christine and Doug Rivers know exactly how much income they have to
live on and which to pay their expenses, including attorney’s fees, on a
monthly basis…. [¶] … [¶]
“6. My only true predictable income and reliable income, is the
income I receive from social security and in the form of rent…. [T]his
amounts to only $4301.40 per month. The balance of my annual income is
generated from oil wells and orange groves and is highly speculative and
varies greatly from year to year. Moreover, because I am forced to leave
the income generated from these assets in the asset for use as operating
expense, the income earned cannot be determined with any degree of
certainty until year’s end.
“7. This court previously ordered me to pay $80,000 in attorney’s
fees and $32,000 in costs toward Christine’s fees and costs incurred in
connection with her underlying Motion to Set Aside Judgment ….
[R]egardless of the correctness of the court’s prior decision, my current
income is vastly different from the income previously used by the court
when ruling on Christine’s request for fees and costs in December of 2012
based on 2011 income. [¶] … [¶]
“9. I was forced to plug two (2) dead wells in 2012 and even more
of the wells are being plugged this year because they are dead…. [¶] … [¶]
“14. Christine reflects cash in the bank of $39,804.49, which is up
over $17,304.49 from what she reflected she had in the bank on her
December 7, 2012 Income and Expense Declaration, which means she is
able to save money while at the same time complaining that she has no
money to pay her own attorney[’]s fees. Christine lists real and personal
property totaling $904,500 but I believe her total assets are worth far more
than this sum given that Doug has added her to all of his assets and she has
also acquired other assets since our divorce …. Christine shows expenses
… of only $10,620.00 per month. This includes charitable contributions of
$1300.00 per month. If you take this amount out, Christine’s monthly
expenses, even with loans associated with payment of attorney[’]s fees for
this litigation, total $9320.00…. [I]t is clear that Christine and Doug have
a[] combined income as reflected of $16,425.00 with combined necessary
21.
expenses of only $9320.00, leaving more than sufficient income to pay her
own attorney[’]s fees. Indeed, it is clear that Christine has a far superior
ability to pay fees and costs than I do….”
Walter’s Form 1040 (2012) showed a business income of $25,283 and an adjusted
gross income of $10,741. His 2012 Federal Depreciation Schedule listed a grand total
depreciable basis of $660,43918 with regard to his oil working interest, rental home, grain
and corn, lemons, and pasture.
On July 11, 2013, following a motion hearing, the court ordered Walter to pay
Christine $50,000 in appellate attorney’s fees, finding that (1) “there is a demonstrated
disparity between the parties in access to funds to retain or maintain counsel”; (2) Walter
“has or is reasonably likely to have the ability to pay for legal representation for both
parties”; and (3) Christine’s fees “are reasonable and necessary.” The court detailed:
“24. Under the analysis required by … sections 2030 and 2032, it
appears [Christine] had annual taxable income from the flower shop of
$19,701 on the last tax return, … $1,641[.75] per month. The Court finds
that that income is available to her. [Christine] has royalty income of
between $4,500 and $4,700 per month. She also has rent of about $7[25]
per month. Her Income and Expense Declaration reflects monthly expenses
of $10,620 which includes approximately $2,000 per month in payments
toward attorney[’]s fees. She also claimed significant depreciation of
$457,000 on her tax returns. She has more than $175,000 in debt from her
attorney’s fees to date pursuant to her Income and Expense Declaration.
The Court finds she has new spouse income, depending on how you
analyze it, from $11,000 to $12,500 which is available, but the Court is not
going to consider all of that income available for purposes of the appeal.
The Court does not believe it is Mr. Rivers’ job to fund this appeal. And, in
fact, the fees far out stretch even his ability to pay. [¶] … [¶]
“26. [Walter’s] 2012 tax returns show adjusted gross income of
$10,741. The depreciation deductions from all his businesses are $673,126.
The Court finds much of this money is available to him. With regards to
whether he has this income or he invested it, the Court notes that [Walter]
manages consistently to turn large incomes to minimal or negative taxable
18 This figure was the difference between $673,126 (the grand total cost) and
$12,687 (a prior depreciation deduction under Int.Rev. Code, § 179).
22.
incomes. His gross income or working interest on his business return is
$498,000,[19] but net taxable income in those interests was $25,2[8]3.
Every year he places significant capital at risk for absolutely minimal
returns. In this case, his returns for 2012 were less th[a]n he could have
gotten sitting at home in an easy chair, chasing his social security check.
The court finds that the only reason a person would put millions of dollars
of capital at risk in what are often very risky businesses, such as the oil and
gas business, farming and citrus, is because the returns are actually
substantial. The Court finds that a lot of people underestimate [Walter].
The Court does not. The Court finds that [Walter] is a successful investor,
a bright man, and that he makes money on his investments. The Court
believes that [Walter] puts his capital at risk because he expects to, and
does, earn a substantial return on that capital.
“27. The Court finds that the Income and Expense Declaration for
[Walter] doesn’t match his tax return directly. The Income and Expense
Declaration shows expenses for [Walter] of $4,447.17 a month. It reflects
income of $8,268.68 a month. So, even by his own accounting, [Walter’s]
income exceeds his expenses substantially, though the Court does not
believe that the income reflected on the taxes is the factual income. The
Court believes [Walter’s] income to be substantially greater than reflected
on his tax return. The Court is also aware of and taking into account the
approximately $800,000.00 [Walter] had from the sale of oil interests in
2011 and is taking into account that those assets should be and are earning
significant income in returns.” (Boldface omitted.)
In view of section 4320, the court found the following factors particularly relevant: (1)
Christine’s job skills were “essentially derived from” helping Walter with his oil and gas
businesses; (2) Walter’s earning capacity far exceeded Christine’s; (3) Walter
“maintained most of the profitable and available community assets and earn[ed] …
substantially more income than what may be reflected in the tax returns”; (4) Christine
sustained “significantly greater financial hardships,” given that she “incurred about
$300,000 in fees and costs over the last hearing,” “retain[ed] less valuable assets and less
income in properties,” and “spent money reinvesting and increasing them”; (5) Christine
owned and managed a flower shop that did not generate much income and did not seek
19 It is unclear from where the court derived this figure, though Walter’s attorney
apparently conceded that his client’s gross income totaled approximately $600,000.
23.
further education and/or training; and (6) Walter’s tax returns “d[id] not accurately
indicate his income and d[id] not indicate funds available to him.” (Boldface omitted.)
On July 22, 2013, Walter filed an appeal from the July 11, 2013, order. On
July 30, 2013, he posted an undertaking for appeal from that order pursuant to Code of
Civil Procedure section 917.1.
VIII. Christine’s third and fourth motions after the January 8, 2013, order.
On September 4, 2013, Christine filed two more motions. First, she requested the
immediate payment of the July 11, 2013, appellate attorney’s fees award and the release
of Walter’s bond. Christine reargued that, notwithstanding an undertaking filed pursuant
to Code of Civil Procedure section 917.1, subdivision (a)(1), a need-based award under
sections 2030 and 2032 must be paid during the pendency of an appeal. Second,
Christine requested $13,639 in costs for the enforcement of the January 8, 2013, order
and $20,000 in attorney’s fees to petition the Fifth Appellate District for writ relief if her
request for the immediate payment of the July 11, 2013, appellate attorney’s fees award
was rejected.20
In an income and expense declaration dated August 18, 2013, Christine related
that her average monthly payments from rental properties and royalty interests were
substantially the same while her average monthly expenditures decreased to $10,553.20.
$1,843.60 of these expenditures went toward her legal expenses. Also, the value of
Christine’s liquid assets increased to $45,173.23. As of September 4, 2013, she paid her
attorneys $318,094.22. $59,797.26 of that sum went to Borchers, who was still owed
$14,280.30. Christine incurred $214,822.41 in debt to finance her legal team.
Walter opposed both motions. First, he asserted that the court could not order the
immediate payment of the July 11, 2013, appellate attorney’s fees award because he
posted an undertaking. Second, Walter argued that an award of costs associated with the
20 Borchers provided the bases for these amounts in a separate declaration.
24.
enforcement of the January 8, 2013, order was not reasonable or necessary because
Christine “knew Walt[er] had filed an appeal and that his attorneys were working on
getting a bond posted.” (Boldface omitted.) Finally, he maintained that an award of
attorney’s fees to pursue extraordinary writ relief “is patently unfair to Walt[er] and does
not constitute any effort to level the playing field to allow a spouse to pay attorney[’s]
fee[s], experts and the cost of litigation as required under the [In re Marriage of] Tharp
[(2010) 188 Cal. App. 4th 1295 (Tharp)] holding or the other cases which support the
awarding of fees and costs under section[s] 2030 and 2032.”
In an income and expense declaration filed September 24, 2013, Walter related
that his monthly earnings as a farmer and owner of oil working interests decreased to
$7,801.34 and $2,665.85, respectively. His monthly payments from dividends and
interests, rental properties, royalties, and Social Security, his monthly expenditures, and
the value of his assets remained the same. As of September 23, 2013, Walter paid
Harbottle $136,109.59, which came from his earnings. He still owed her $33,988.35.
At the September 27, 2013, motion hearing, the court indicated that it would (1)
deny Christine’s request for immediate payment of the July 11, 2013, award; (2) grant
Christine’s request for costs associated with the collection of the January 8, 2013, award,
albeit a reduced amount; and (3) grant Christine’s request for $20,000 in attorney’s fees
to pursue extraordinary writ relief. It specified:
“I don’t really think I have the jurisdiction to order immediate
payment of the [appellate attorney’s] fees on appeal. I think I made my
ruling fairly clear that I think that it’s not an award of a coin toss that could
be stayed, be forced into the appropriate bond. The bonds have been filed,
both of those appeals, and the appeals filed and proceeding.”
“… [C]onsider[ing] the issue of fees regarding collection[,] … [¶]
… [¶] … I have reviewed [Borchers’s] billing statements, which on the
whole I don’t find unreasonable…. [¶] … [F]undamentally[, Borchers]
had waited a long time …. I mean, … [she] could have commenced
levying in January and waited on the ruling for the fee motion, waited on
another motion, essentially after the bonding issue.
25.
“I don’t believe all of the fees were necessary. I think in looking
through them, specifically I thought there were too many interoffice
conferences. There was significant money spent on out-of-state levy
procedures … and then an hour-and-a-half just reviewing and redacting
bills. There were … some fees … that were unrelated to the collection
efforts, like two-and-a-half hours for preparation of order after hearing, a
couple hours spent on research. [¶] I don’t think collection procedures are
really a research matter. [¶] … [¶]
“… I do find that the fees related to the preparation of the motion are
recoverable. I think many of the fees were reasonable. I’ve previously
made very expansive findings on [section] 2030 issues, [section] 2032,
[section] 4320. I certainly reiterate and adopt those findings from May
17th of this year and January 8th of this year. But I am going to award fees
for the motion based on review of those matters in the amount of $10,000.
“That brings us to the issues for the writ and I think … both [parties]
certainly present a very eloquent and reasoned approach for [their]
positions and quite frankly I don’t know the answer to that. [¶] I think …
that Tharp is my authority here, and like the Tharp case it’s a complex case,
significant earning disparity and significant income disparity. That
appellate case looked at [section] 2030 and the policy of leveling the
playing field.
“I think here [Christine] certainly has been frustrated in her ability to
get to appeal and prosecute her own appeal, unable to collect the fees on the
first matter …. [¶] And, again, I’m not saying that [Walter’s] conduct is
unreasonable because it’s entirely consistent with my prior rulings so I
cannot say that what [Walter] ha[s] done is in any way improper. But in
looking at these income and expense declarations, [Christine] had to spend
a significant amount, … over $300,000 in attorney[’s] fees, has borrowed
that money, has mortgaged property, has depleted her savings. [Walter] has
paid, according to the declaration he filed, about $136,000 just from what
he made in his earnings, which again, I think, points to the disparity to the
access of funds in this case. [¶] … [¶]
“I’ve engaged in extensive analysis of this income and asset
information, the tax returns in May, and I think I know the parties’ taxes
well enough, and I don’t feel that [Christine’s] income and expense
declaration is either really inaccurate or an attempt to mislead the Court in
any way. [¶] … [¶]
“… I think we need directions from the appellate court. And I have
two lawyers coming in here and arguing perfectly reasonable positions
26.
supported by the statutes and the case law that they cite. I need someone
higher up the food chain to give me some direction, and that’s what I’m
asking for here, and that’s why I think we need to have some fees paid on
appeal to level that playing field and allow the matter to proceed one way
or the other.
“So I am going to order further fees on appeal payable by [Walter] to
[Christine] in the amount of $20,000 in addition to the $10,000 ordered for
collection efforts….”
Harbottle and Baxter pointed out that the court did not establish Walter’s actual
income. The court responded:
“I made extensive findings about his tax returns, concluding his
depreciation is largely available to him and the fact that, based on the huge
amount of income that comes and goes from his various businesses and his
willingness to put huge amounts of capital at risk, that his tax returns are in
no way a reflection of his income. In fact, I think I pointed out the last
time, based on his tax return, he would be better off at home, in front of the
TV, living on Social Security and not putting all of these millions of dollars
in assets at risk in risky businesses. [¶] … [¶]
“…. You’re not going to hear me say he makes $324,000.18
because I don’t know what he makes. I’m not an accountant, I have never
seen a forensic accountant. I have looked at enough tax returns. And I
think I made very extensive findings on the issues in May. [¶] … [¶]
“… I think [Walter’s] income is in the hundred thousands annually.
I think it effectively pays -- well, based on his 2012 returns virtually is
certainly a reflection, based on the testimony heard at the trial, the way his
accountant pays the tax returns. I think I made findings to that effect in my
initial ruling.
“The fact that he got this money from the sale of the petroleum
interest and thought he can somehow defer these into some escrow account
and then realized or was pointed out to him that he couldn’t but his
accountant still files those tax returns which, you know, I don’t know how
under any conceivable set of circumstances an accountant could have done
in good conscience. [¶] … [¶]
“… I’m not saying those funds are available to him … as I recall
they were invested into real estate assets. I’m not requiring him to sell
those assets.
27.
“But as I indicated then I think these are people who, based on tax
returns, during their marriage kept losing money every year, hundreds of
thousands dollars every year, and yet kept acquiring more assets every year.
I never learned that trick and [Walter] apparently has.
“So, as I indicated, I’m going to adopt my prior findings regarding
[Walter’s] income. I think the financial situation of the parties is
substantially unchanged since the last ruling.
“I reiterate my findings, indicate this award in fees is appropriate in
this case. I think it is a vast income disparity and I think he has the ability
to pay that, despite his representations to the Court to the contrary.”
On October 24, 2013, the superior court issued the following order:
“10. [Christine] in her Motion for Immediate Payment of
Appellate Attorney[’s] Fees and Costs Previously Awarded and to Order
Bond Released, takes the position that … sections 2030 and 2032 prohibit
[Walter] from bonding the appellate attorney[’s] fees awarded by the Court
on July 11, 2013, and asks this Court to order the immediate payment of the
attorney[’s] fees awarded for the appeal and to release the bond. [Walter]
takes the position that the award of attorney[’s] fees is an order for the
payment of money that can be bonded in accordance with [Code of Civil
Procedure s]ection 917.1.
“11. After further consideration and argument by the parties, the
Court denies the Motion for Immediate Payment of Appellate Attorney[’s]
Fees and Costs Previously Awarded and to Order Bond Released. The
Court does not believe it has the jurisdiction to order immediate payment of
the attorney[’s] fees ordered on appeal and to order release of the bond in
light of the fact an appeal and undertaking have been filed in accordance
with [Code of Civil Procedure s]ection 917.1
“12. As to the Motion for Costs in Enforcing Order And For
Additional Attorney[’s] Fees to Pursue Immediate Appellate Relief, If
Necessary, the Court grants this motion. The Court awards [Christine]
$10,000 for attorney[’s] fees and costs incurred in enforcing the Court’s
January 8, 2013 order awarding attorney[’s] fees and costs. The Court
awards the $10,000 under … [s]ection[s] 2030 and 2032 and adopts and
incorporates by reference the Court’s conclusions and findings as detailed
in its July 11, 2013 Order awarding need based fees for the appellate
attorney[’s] fees, as well as the Court’s conclusions and findings detailed
on the record at the hearing on September 27, 2013, to support its award
herein.
28.
“13. As part of the Motion for Costs in Enforcing Order And For
Additional Attorney[’s] Fees to Pursue Immediate Appellate Relief, If
Necessary, [Christine] requests that the Court award her $20,000 in need
based fees to pursue a writ before the Fifth District Court of Appeal in the
event the Court denied the Motion for Immediate Payment of Appellate
Attorney[’s] Fees and Costs Previously Awarded and to Order Bond
Released. As noted above, the Court denies the Motion for Immediate
Payment of Appellate fees. The Court does award $20,000 to allow
[Christine] to pursue a Petition for Writ of Mandate with respect to the
denial of this Motion to obtain an appellate answer to the issue of whether
… [s]ection 2030 need based fee awards of appellate attorney[’s] fees can
be stayed on appeal by the posting of an undertaking pursuant to [Code of
Civil Procedure s]ection 917.1. The Court makes the award of $20,000
under … [s]ection[s] 2030 and 2032 and adopts and incorporates by
reference the Court’s conclusions and findings as detailed in its July 11,
2013 Order awarding need based fees for the appellate attorney[’s] fees, as
well as the Court’s conclusions and findings detailed on the record at the
hearing on September 27, 2013, to support its award herein.”
On November 25, 2013, Walter filed an appeal from the October 24, 2013, order.
On January 14, 2014, he posted an undertaking pursuant to Code of Civil Procedure
section 917.1.
DISCUSSION
The Set Aside
I. Overview of the disclosure requirements (§ 2100 et seq.).
“It is the policy of the State of California … to marshal, preserve, and protect
community and quasi-community assets and liabilities that exist at the date of separation
so as to avoid dissipation of the community estate before distribution … and … to
achieve a division of community and quasi-community assets and liabilities on the
dissolution or nullity of marriage or legal separation of the parties as provided under
California law.” (§ 2100, subd. (a); see § 2120, subd. (a).) “Sound public policy further
favors the reduction of the adversarial nature of marital dissolution and the attendant
costs by fostering full disclosure and cooperative discovery.” (§ 2100, subd. (b).) “In
order to promote this public policy, a full and accurate disclosure of all assets and
29.
liabilities in which one or both parties have or may have an interest must be made in the
early stages of a proceeding for dissolution of marriage or legal separation of the parties,
regardless of the characterization as community or separate, together with a disclosure of
all income and expenses of the parties. Moreover, each party has a continuing duty to
immediately, fully, and accurately update and augment that disclosure to the extent there
have been any material changes so that at the time the parties enter into an agreement for
the resolution of any of these issues, or at the time of trial on these issues, each party will
have a full and complete knowledge of the relevant underlying facts.” (Id., subd. (c); see
§ 2120, subd. (a).)
Parties to a marital dissolution proceeding are in a fiduciary relationship. (See
§§ 2100, subd. (c), 2102; see also In re Marriage of Brewer & Federici (2001) 93
Cal. App. 4th 1334, 1344 [“The formulation of a[n] [MSA] is not an ordinary business
transaction, resulting from an arm’s-length negotiation between adversaries. Rather, it is
the result of negotiations between fiduciaries required to openly share information.”].)
“From the date of separation to the date of the distribution of the community or quasi-
community asset or liability in question, each party is subject to the standards provided in
[s]ection 721,[21] as to all activities that affect the assets and liabilities of the other party,
including, but not limited to, … [¶] … [t]he accurate and complete disclosure of all
assets and liabilities in which the party has or may have an interest or obligation and all
current earnings, accumulations, and expenses, including an immediate, full, and accurate
update or augmentation to the extent there have been any material changes.” (§ 2102,
subd. (a)(1); see In re Marriage of Prentis-Margulis & Margulis (2011) 198 Cal. App. 4th
21 Section 721, subdivision (b) reads, in relevant part:
“[I]n transactions between themselves, spouses are subject to the general
rules governing fiduciary relationships that control the actions of persons
occupying confidential relations with each other. This confidential
relationship imposes a duty of the highest good faith and fair dealing on
each spouse, and neither shall take any unfair advantage of the other.”
30.
1252, 1270 [“[S]ection 2100 makes clear that these fiduciary obligations of disclosure
and accounting continue to bind spouses after separation until final distribution of
assets.”].)22
II. The October 26, 2011, set-aside motion was not time-barred because
Christine discovered Walter’s failure to disclose the Mendonca Note
less than a year before she filed the motion.
“Section 2122 sets out the exclusive grounds and time limits for an action or
motion to set aside a marital dissolution judgment.” (In re Marriage of Rosevear (1998)
65 Cal. App. 4th 673, 684.) In particular, subdivision (f) reads:
“Failure to comply with the disclosure requirements of Chapter 9
(commencing with [s]ection 2100). An action or motion based on failure to
comply with the disclosure requirements shall be brought within one year
after the date on which the complaining party either discovered, or should
have discovered, the failure to comply.” (§ 2122.)
“[A] limitations period dependent on discovery of the cause of action begins to run
no later than the time the plaintiff learns, or should have learned, the facts essential to
h[er] claim.” (Gutierrez v. Mofid (1985) 39 Cal. 3d 892, 897, italics omitted; see
Rubenstein v. Rubenstein, supra, 81 Cal.App.4th at p. 1149, italics omitted [“[T]he
statute of limitations under [former] section 2122 accrues as of the date the plaintiff either
discovered or should have discovered the facts constituting the fraud or perjury ….”].)
The Supreme Court explained:
“[T]he plaintiff discovers the cause of action when [s]he at least suspects a
factual basis, as opposed to a legal theory, for its elements, even if [s]he
lacks knowledge thereof—when, simply put, [s]he at least ‘suspects … that
someone has done something wrong’ to h[er] [citation], ‘wrong’ being
22 “[A]s part of [the] statutory scheme designed to ensure that parties to a dissolution
action meet their fiduciary duty to make full disclosure of their assets and liabilities”
(Elden v. Superior Court (1997) 53 Cal. App. 4th 1497, 1507, italics added), sections 2104
and 2105 impose “an affirmative duty to exchange both a preliminary and a final
declaration of disclosure … prior to judgment being entered” (In re Marriage of
McLaughlin (2000) 82 Cal. App. 4th 327, 331). (Accord, § 2103.)
31.
used, not in any technical sense, but rather in accordance with its ‘lay
understanding’ [citation]. [Sh]e has reason to discover the cause of action
when [s]he has reason at least to suspect a factual basis for its elements.
[Citation.] [Sh]e has reason to suspect when [s]he has ‘“‘“notice or
information of circumstances to put a reasonable person on inquiry”’”’
[citation]; [s]he need not know the ‘specific “facts” necessary to establish’
the cause of action; … but, within the applicable limitations period, [s]he
must indeed seek to learn the facts necessary to bring the cause of action in
the first place—[s]he ‘cannot wait for’ them ‘to find’ h[er] and ‘sit on’ h[er]
‘rights’; [s]he ‘must go find’ them h[er]self if [s]he can and ‘file suit’ if
[s]he does [citation].” (Norgart v. Upjohn Co. (1999) 21 Cal. 4th 383, 397-
398, fns. omitted.)
“However, a fiduciary has a duty to make a full and fair disclosure of all facts which
materially affect the rights and interest of the parties, and, where a fiduciary relationship
exists, facts which would ordinarily require investigation may not excite suspicion.”
(Bennett v. Hibernia Bank (1956) 47 Cal. 2d 540, 559-560, citing Hobart v. Hobart Estate
Co. (1945) 26 Cal. 2d 412, 440; see Hobbs v. Bateman Eichler, Hill Richards, Inc. (1985)
164 Cal. App. 3d 174, 202 [“[A] plaintiff is entitled to rely upon the assumption that h[er]
fiduciary is acting on h[er] behalf.”].)
“Resolution of [a] statute of limitations issue is normally a question of fact” (Fox
v. Ethicon Endo-Surgery, Inc. (2005) 35 Cal. 4th 797, 810) and a “trial court’s finding on
the accrual of a cause of action for statute of limitations is upheld on appeal if supported
by substantial evidence” (Institoris v. City of Los Angeles (1989) 210 Cal. App. 3d 10, 17).
(See Consolidated Irrigation Dist. v. City of Selma (2012) 204 Cal. App. 4th 187, 200
[“When applying the substantial evidence test, ‘the power of the appellate court begins
and ends with a determination whether there is any substantial evidence, contradicted or
uncontradicted, which supports the finding.’”].)
We conclude the October 26, 2011, set-aside motion was timely filed. Christine
alleged that Walter did not identify the Mendonca Note as an asset. She was unaware of
this exclusion until her attorney came across the Note during a public records search in
April 2011. (Cf. In re Marriage of Feldman (2007) 153 Cal. App. 4th 1470, 1482-1483,
32.
1487-1488 [ex-husband’s failure to disclose purchase of $1 million bond and existence of
401(k) account on schedule of assets and debts violated § 2102, subd. (a)(1)].) Christine
reiterated these points at the motion hearing, emphasizing that she trusted Walter, who
normally handled business and financial matters. Walter acknowledged that the MSA did
not mention the Mendonca Note, but argued that Christine participated in the original real
estate transaction with the Mendoncas; Christine promptly notified him about the Note’s
exclusion from the MSA; and he and Christine entered into a separate agreement on the
Note after entry of the November 6, 2009, dissolution judgment. He pointed out that the
Mendoncas made monthly payments since 2003 and the parties’ annual tax returns
reported interest on the Note.
In its January 8, 2013, statement of decision, the trial court concluded that Walter
breached his fiduciary duty by failing to disclose the Mendonca Note.23 In doing so, it
necessarily credited Christine’s account that (1) Walter never disclosed the Note to her;
(2) she relied on Walter’s warranty that he “d[id] not own any property of any kind, other
than the property listed in th[e MSA]”; and (3) she did not recall the Note until her
attorney located it in his April 2011 records search. (See Consolidated Irrigation Dist. v.
City of Selma, supra, 204 Cal.App.4th at p. 201 [“The testimony of a single witness, even
if that witness is a party to the case, may constitute substantial evidence.”], citing In re
Marriage of Mix (1975) 14 Cal. 3d 604, 614; Lenk v. Total-Western, Inc. (2001) 89
Cal. App. 4th 959, 968 [“‘[N]either conflicts in the evidence nor “‘testimony which is
subject to justifiable suspicion … justif[ies] the reversal of a judgment, for it is the
23 At oral argument, Walter proposed that the Mendonca Note was always an omitted
asset that would be apportioned at a later date. This assertion, which was neither
developed nor substantiated in the opening brief, was contradicted by the court’s findings
that “Walt[er] had a continuing duty [under section 721] to disclose and divide th[e
Mendonca Note], which he failed to do” and “[e]ven if th[e N]ote was forgotten by
Christine and omitted in the parties’ settlement negotiations, Walt[er] knew of its
existence as he continued to receive the monthly payment until the [N]ote was paid off.”
33.
exclusive province of the [trier of fact] to determine the credibility of a witness and the
truth or falsity of the facts upon which a determination depends.’”’”].)24
III. Walter’s failure to disclose the Mendonca Note constituted prejudicial
error.
Section 2107, subdivision (d) states, in relevant part:
“[I]f a court enters a judgment when the parties have failed to comply with
all disclosure requirements of this chapter, the court shall set aside the
judgment. The failure to comply with the disclosure requirements does not
constitute harmless error.”
As Division Three of the Fourth Appellate District correctly observed, however, “[t]o the
degree … that section 2107, subdivision (d) is read for the proposition that a judgment
must be set aside … solely because of … [non]disclosure, it is not consistent with our
state’s Constitution.” (In re Marriage of Steiner & Hosseini (2004) 117 Cal. App. 4th 519,
24 Alternatively, Walter argues that Christine “invited … error and should be
estopped from being permitted to set aside the Judgment” because she “represented to the
court on at least two different occasions … that she complied with … section 2104 and
completed and exchanged her preliminary declarations of disclosure.”
At least one case has expressed that the doctrine of invited error prohibits a party
from basing a set-aside motion on the party’s own failure to provide a preliminary
disclosure declaration. (In re Marriage of Campi (2013) 212 Cal. App. 4th 1565, 1576; cf.
Evans, supra, 229 Cal.App.4th at p. 390, fn. 11, quoting Civ. Code, § 3517 [William’s
argument that his own failure to serve a final disclosure declaration rendered the pre-
divorce agreement unenforceable violated maxim of jurisprudence that “‘[n]o one can
take advantage of his own wrong’”]; Woolsey, supra, 220 Cal.App.4th at p. 894 [“[Clark]
may not be heard to complain about his own failure to serve the final financial
disclosure…. Allowing ‘a non-complying party [to] unilaterally undo a judgment after
trial when he or she would have to comply to obtain disclosure before trial [would]
create[] a most perverse set of incentives: … [A] party could deliberately not comply
with disclosure requirements, keep mum, see if the trial results in an acceptable
judgment, and then have the opportunity to obtain a better result by pulling the non-
disclosure card out of his or her sleeve on appeal or new trial motion.’”].)
The doctrine does not apply here. Although Christine herself did not fully comply
with the disclosure requirements, she based her set-aside motion on Walter’s
nondisclosures.
34.
527 (Steiner); see Cal. Const., art. VI, § 13 [“No judgment shall be set aside, … in any
cause, … for any error as to any matter of procedure, unless, after an examination of the
entire cause, including the evidence, the court shall be of the opinion that the error
complained of has resulted in a miscarriage of justice.”].) “Additionally, to the degree
that section 2107, subdivision (d) is read for that proposition, it is also ... inconsistent
with at least one other statute which is part of the same scheme ….” (Steiner, supra, at
p. 527; see § 2121, subd. (b) [“In all proceedings under this chapter, before granting
relief, the court shall find that the facts alleged as the grounds for relief materially
affected the original outcome and that the moving party would materially benefit from
the granting of the relief.”].) In view of “established canon[s] … that statutes must be
construed … to render them constitutional” (Steiner, supra, at p. 528) and “[s]tatutory
schemes must … be read as a whole, harmonizing their provisions” (ibid.), “the statement
in section 2107, subdivision (d) that a failure to comply with the … disclosure
requirements is not ‘harmless error’ must give way to the Constitution and the balance of
the legislative scheme” (ibid.). Thus, a dissolution judgment cannot be set aside unless
“some portion of the judgment [was] materially affected by the nondisclosure.” (Ibid.;
see In re Marriage of Kieturakis (2006) 138 Cal. App. 4th 56, 92 (Kieturakis) [showing of
prejudice required notwithstanding statutory language].)
Normally, an appellate court “review[s] the trial court’s decision in ruling on the
motion to set aside the judgment and [MSA] to determine if the trial court abused its
discretion.” (In re Marriage of Brewer & Federici, supra, 93 Cal.App.4th at p. 1346; see
Sargon Enterprises, Inc. v. University of Southern California (2012) 55 Cal. 4th 747, 773
[“A ruling that constitutes an abuse of discretion has been described as one that is ‘so
irrational or arbitrary that no reasonable person could agree with it.’”]; Denham v.
Superior Court (1970) 2 Cal. 3d 557, 566 [“‘Discretion is abused whenever, in its
exercise, the court exceeds the bounds of reason, all of the circumstances before it being
considered.’”].) Ultimately, “[w]e are required to uphold [a discretionary] ruling if it is
35.
correct on any basis, regardless of whether such basis was actually invoked.” (In re
Marriage of Burgess (1996) 13 Cal. 4th 25, 32, citing Davey v. Southern Pacific Co.,
supra, 116 Cal. at p. 329; see ante, fn. 6; accord, Montenegro v. Diaz (2001) 26 Cal. 4th
249, 255.)
In its January 8, 2013, statement of decision, the superior court found that “the
grounds for relief materially affected the outcome and that [Christine] would benefit from
granting of the [requested] relief ….” Given our disposition on the statute of limitation
issue (see ante, at pp. 31-34), we focus exclusively on Walter’s nondisclosure of the
Mendonca Note rather than his failure to provide a preliminary disclosure declaration, the
ruling’s “key factor.” Nonetheless, we are not compelled to reverse the ruling. (See In re
Marriage of Burgess, supra, 13 Cal.4th at p. 32.) As previously mentioned, Paragraph X.
of the MSA assured that neither Walter nor Christine “own[ed] any property of any kind,
other than the property listed in [Paragraph IV.].” The court found, however, that the
Mendonca Note was “omitted in the parties’ settlement negotiations” and that Walter
“knew of [the Note’s] existence [and] continued to receive … monthly payment[s] until
the [N]ote was paid off.” In addition, by its findings, the court necessarily credited
Christine’s account that she relied on Paragraph X. and did not discover the Mendonca
Note’s exclusion from the MSA until her attorney located it in his 2011 records search. It
is neither irrational nor arbitrary to conclude that Walter’s breach of fiduciary duty
“materially affected the original outcome” (§ 2121, subd. (b)): no reasonable person
would have signed the extant MSA had he or she been informed about an undisclosed,
$200,000 promissory note beforehand. Furthermore, the court found—in light of Hupp’s,
Luhr’s, and Simon’s opinions—that Walter “obtained more valuable assets” “[b]y
retaining most of the active farming entities and working petroleum interests ….” (See
§ 2120, subd. (b) [“It occasionally happens that the division of property …, whether
made as a result of agreement or trial, is inequitable when made due to the nondisclosure
or other misconduct of one of the parties.”].) Given that the assets were distributed
36.
asymmetrically, it is neither irrational nor arbitrary to conclude that Christine “would
materially benefit from the granting of [set-aside] relief.” (§ 2121, subd. (b).)
IV. The superior court did not abuse its discretion when it barred Michner
as a witness.
“Trial court rulings on the admissibility of evidence, whether in limine or during
trial, are generally reviewed for abuse of discretion.” (Pannu v. Land Rover North
America, Inc. (2011) 191 Cal. App. 4th 1298, 1317; accord, Gordon v. Nissan Motor Co.,
Ltd. (2009) 170 Cal. App. 4th 1103, 1111.) A court abuses its discretion when its ruling
“is ‘so irrational or arbitrary that no reasonable person could agree with it’” (Sargon
Enterprises, Inc. v. University of Southern California, supra, 55 Cal.4th at p. 773) or
“‘exceeds the bounds of reason, all of the circumstances before it being considered’”
(Denham v. Superior Court, supra, 2 Cal.3d at p. 566).
Mediation refers to “a process in which a neutral person … facilitate[s]
communication between the disputants to assist them in reaching a mutually acceptable
agreement.” (Code Civ. Proc., § 1775.1, subd. (a); Evid. Code, § 1115, subd. (a).) “In
appropriate cases mediation provides parties with a simplified and economical procedure
for obtaining prompt and equitable resolution of their disputes and a greater opportunity
to participate directly in resolving these disputes. Mediation may also assist to reduce the
backlog of cases burdening the judicial system. It is in the public interest for mediation
to be encouraged and used where appropriate by the courts.” (Code Civ. Proc., § 1775,
subd. (c); accord, Rojas v. Superior Court (2004) 33 Cal. 4th 407, 415.)
“One of the fundamental ways the Legislature has sought to encourage mediation
is by enacting several ‘mediation confidentiality provisions’” (Rojas v. Superior Court,
supra, 33 Cal.4th at p. 415), which “permit[] the parties to frankly exchange views,
without fear that disclosures might be used against them in later proceedings” (Fair v.
Bakhtiari (2006) 40 Cal. 4th 189, 194). “To carry out the purpose of encouraging
mediation by ensuring confidentiality, the statutory scheme, which includes [Evidence
37.
Code] sections 703.5, 1119, and 1121, unqualifiedly bars disclosure of communications
made during mediation absent an express statutory exception.” 25 (Foxgate
Homeowners’ Assn. v. Bramalea California, Inc. (2001) 26 Cal. 4th 1, 15, fn. omitted.)
The Supreme Court explained:
“The mediation confidentiality statutes govern only the narrow category of
mediation-related communications, but they apply broadly within that
category, and are designed to provide maximum protection for the privacy
of communications in the mediation context. A principal purpose is to
assure prospective participants that their interests will not be damaged, first,
by attempting this alternative means of resolution, and then, once mediation
is chosen, by making and communicating the candid disclosures and
assessments that are most likely to produce a fair and reasonable mediation
settlement.” (Cassel v. Superior Court (2011) 51 Cal. 4th 113, 132-133.)
A mediator is “[in]competent to testify, in any subsequent civil proceeding, as to
any statement, conduct, decision, or ruling, occurring at or in conjunction with the
[mediation]” (Evid. Code, § 703.5) and “may [not] submit to a court or other adjudicative
body … any report, assessment, evaluation, recommendation, or finding of any kind …
concerning a mediation conducted by the mediator” (id., § 1121). Moreover, Evidence
Code section 1119 “prohibits any person, mediator and participants alike, from revealing
any written or oral communication made during mediation.” (Foxgate Homeowners’
Assn. v. Bramalea California, Inc., supra, 26 Cal.4th at p. 13.) This provision specifies:
“(a) No evidence of anything said or any admission made for the
purpose of, in the course of, or pursuant to, a mediation … is admissible or
subject to discovery, and disclosure of the evidence shall not be compelled,
in any … civil action ….
“(b) No writing … that is prepared for the purpose of, in the course
of, or pursuant to, a mediation … is admissible or subject to discovery, and
disclosure of the writing shall not be compelled, in any … civil action ….
25 “On limited occasions, courts have crafted exceptions to mediation confidentiality
and compelled mediators to testify in civil actions.” (Simmons v. Ghaderi (2008) 44
Cal. 4th 570, 582 (Simmons).) However, in his opening brief, Walter specifies that he “is
not seeking the creation of a judicial exception to mediation confidentiality.”
38.
“(c) All communications, negotiations, or settlement discussions by
and between participants in the course of a mediation … shall remain
confidential.” (Evid. Code, § 1119.)
“Anything said, any admission made, or any writing that is inadmissible, protected from
disclosure, and confidential … before a mediation ends, shall remain inadmissible,
protected from disclosure, and confidential to the same extent after the mediation ends.”
(Evid. Code, § 1126; accord, Simmons, supra, 44 Cal.4th at p. 580.)
“[A] court or other adjudicative body may not consider … any report, assessment,
evaluation, recommendation, or finding of any kind by the mediator concerning a
mediation conducted by the mediator, … unless all parties to the mediation expressly
agree otherwise in writing, or orally in accordance with [Evidence Code
s]ection 1118.[26]” (Evid. Code, § 1121; see Kieturakis, supra, 138 Cal.App.4th at
pp. 85-86 [“This ‘“supermajority” requirement … effectively creates a “super
privilege”—impenetrable by public policies favoring disclosure ….’”].) Likewise, “[a]
communication or a writing … that is made or prepared for the purpose of, or in the
course of, or pursuant to, a mediation … is not made inadmissible, or protected from
disclosure, … if … [¶] … [a]ll persons who conduct or otherwise participate in the
mediation expressly agree in writing, or orally in accordance with [Evidence Code
26 Evidence Code section 1118 reads:
“An oral agreement … means an oral agreement that satisfies all of the
following conditions:
“(a) The oral agreement is recorded by a court reporter or reliable
means of audio recording.
“(b) The terms of the oral agreement are recited on the record in the
presence of the parties and the mediator, and the parties express on the
record that they agree to the terms recited.
“(c) The parties to the oral agreement expressly state on the record
that the agreement is enforceable or binding, or words to that effect.
“(d) The recording is reduced to writing and the writing is signed by
the parties within 72 hours after it is recorded.”
39.
s]ection 1118, to disclosure of the communication, document, or writing[, or] [¶] …
[t]he communication, document, or writing was prepared by or on behalf of fewer than all
the mediation participants, those participants expressly agree in writing, or orally in
accordance with [Evidence Code s]ection 1118, to its disclosure, and the communication,
document, or writing does not disclose anything said or done or any admission made in
the course of the mediation.” (Evid. Code, § 1122, subd. (a); see Kieturakis, supra, at
pp. 85-86.)
We conclude the court did not abuse its discretion when it barred Michner as a
witness. Walter wanted Michner to testify about matters related to the parties’ mediation.
Such testimony—as recognized by Michner—was clearly prohibited by the mediation
privilege, which Christine refused to waive. (See Simmons, supra, 44 Cal.4th at p. 588
[“The Legislature chose to promote mediation by ensuring confidentiality rather than
adopt a scheme to ensure good behavior in the mediation and litigation process.”]; Kurtin
v. Elieff (2013) 215 Cal. App. 4th 455, 470 [“The California Supreme Court has clearly
signaled the policy behind the mediation privilege is so strong that California law is
willing to countenance the ‘high price’ of the loss of relevant evidence to protect the
privilege.”]; Wimsatt v. Superior Court (2007) 152 Cal. App. 4th 137, 142 [“The Supreme
Court has held that the mediation statutes are to be broadly construed to effectuate the
legislative intent, even if there are conflicting public policies and even if the equities in a
particular case suggest a contrary result.”].)
Attorney’s Fees and Costs
I. Standard of review of award of attorney’s fees and costs.
On appeal, we review an award of attorney’s fees and costs under sections 2030
and 2032 for an abuse of discretion. (In re Marriage of Sorge (2012) 202 Cal. App. 4th
626, 662.) We will not reverse a ruling on a motion for fees and costs “absent a showing
that no judge could reasonably have made the order, considering all of the evidence
40.
viewed most favorably in support of the order.” (In re Marriage of Falcone & Fyke
(2012) 203 Cal. App. 4th 964, 975; accord, In re Marriage of Sullivan (1984) 37 Cal. 3d
762, 768-769.) “‘The abuse of discretion standard is not a unified standard; the deference
it calls for varies according to the aspect of a trial court’s ruling under review. The trial
court’s findings of fact are reviewed for substantial evidence, its conclusions of law are
reviewed de novo, and its application of the law to the facts is reversible only if arbitrary
and capricious.’” (In re Marriage of Walker (2012) 203 Cal. App. 4th 137, 146, quoting
Haraguchi v. Superior Court (2008) 43 Cal. 4th 706, 711-712.)
“When applying the substantial evidence test, ‘the power of the appellate court
begins and ends with a determination whether there is any substantial evidence,[27]
contradicted or uncontradicted, which supports the finding.’ [Citation.]” (Consolidated
Irrigation Dist. v. City of Selma, supra, 204 Cal.App.4th at pp. 200-201.) “‘“We must
therefore view the evidence in the light most favorable to the prevailing party, giving it
the benefit of every reasonable inference and resolving all conflicts in its favor in
accordance with the standard of review so long adhered to by this court.” [Citation.]’
[Citations.]” (Lenk v. Total-Western, Inc., supra, 89 Cal.App.4th at p. 968.) “We do not
reweigh the evidence, evaluate the credibility of witnesses, or resolve evidentiary
conflicts.” (In re Dakota H. (2005) 132 Cal. App. 4th 212, 228.) A finding will be upheld
if it is supported by substantial evidence, even if substantial evidence to the contrary also
exists and the lower court might have rendered a different result had it believed this
evidence. (Ibid.)
De novo review of an award of attorney’s fees is warranted “‘“where the
determination of whether the criteria for an award of attorney[’s] fees and costs … have
been satisfied amounts to statutory construction and a question of law.”’”
27 Substantial evidence is reasonable, credible, of solid value, and of ponderable
legal significance. (Kuhn v. Department of General Services (1994) 22 Cal. App. 4th
1627, 1633.)
41.
(Conservatorship of Whitley (2010) 50 Cal. 4th 1206, 1213, quoting Connerly v. State
Personnel Bd. (2006) 37 Cal. 4th 1169, 1175.)
As to a lower court’s application of the law to the facts, “‘[d]iscretion is abused
whenever, in its exercise, the court exceeds the bounds of reason, all of the circumstances
before it being considered.’” (Denham v. Superior Court, supra, 2 Cal.3d at p. 566; see
Sargon Enterprises, Inc. v. University of Southern California, supra, 55 Cal.4th at p. 773
[“A ruling that constitutes an abuse of discretion has been described as one that is ‘so
irrational or arbitrary that no reasonable person could agree with it.’”].) However, while
the court “has considerable latitude in fashioning or denying an attorney[’s] fees award,
its decision must reflect an exercise of discretion and a consideration of the appropriate
factors as set forth in … sections 2030 and 2032.” (Tharp, supra, 188 Cal.App.4th at
p. 1313; see Alan S. v. Superior Court (2009) 172 Cal. App. 4th 238, 254 (Alan S.)
[“While no particular language is required in an order awarding attorney[’s] fees under
sections 2030 and 2032, the record (including, but not limited to, the order itself), must
reflect an actual exercise of discretion and a consideration of the statutory factors in the
exercise of that discretion.”].)
II. Overview of sections 2030 and 2032.
“In a proceeding for dissolution of marriage, … and in any proceeding subsequent
to entry of a related judgment, the court shall ensure that each party has access to legal
representation … to preserve each party’s rights by ordering, if necessary based on the
income and needs assessments, one party … to pay to the other party … whatever amount
is reasonably necessary for attorney’s fees and for the cost of maintaining or defending
the proceeding during the pendency of the proceeding.” (§ 2030, subd. (a)(1).) An
award of attorney’s fees and costs under section 2030 must be “just and reasonable under
the relative circumstances of the respective parties.” (§ 2032, subd. (a).) “In determining
what is just and reasonable under the relative circumstances, the court shall take into
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consideration the need for the award to enable each party, to the extent practical, to have
sufficient financial resources to present the party’s case adequately, taking into
consideration, to the extent relevant, the circumstances of the respective parties described
in [s]ection 4320.[28]” (Id., subd. (b).) “The fact that the party requesting an award of
28 Section 4320 provides:
“In ordering spousal support …, the court shall consider all of the following
circumstances:
“(a) The extent to which the earning capacity of each party is
sufficient to maintain the standard of living established during the marriage
…. [¶] … [¶]
“(b) The extent to which the supported party contributed to the
attainment of an education, training, a career position, or a license by the
supporting party.
“(c) The ability of the supporting party to pay spousal support,
taking into account the supporting party’s earning capacity, earned and
unearned income, assets, and standard of living.
“(d) The needs of each party based on the standard of living
established during the marriage.
“(e) The obligations and assets, including the separate property, of
each party.
“(f) The duration of the marriage.
“(g) The ability of the supported party to engage in gainful
employment without unduly interfering with the interests of dependent
children in the custody of the party.
“(h) The age and health of the parties.
“(i) Documented evidence of any history of domestic violence …
between the parties or perpetrated by either party against either party’s
child ….
“(j) The immediate and specific tax consequences to each party.
“(k) The balance of the hardships to each party.
“(l) The goal that the supported party shall be self-supporting within
a reasonable period of time….
[fn. cont’d on next page]
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attorney’s fees and costs has resources from which the party could pay the party’s own
attorney’s fees and costs is not itself a bar to an order that the other party pay part or all
of the fees and costs requested.” (Ibid.; see In re Marriage of Cheriton (2001) 92
Cal. App. 4th 269, 315 [“‘A disparity in the parties’ respective circumstances may itself
demonstrate relative “need” even though the applicant spouse admittedly has the funds to
pay his or her fees.’”]; In re Marriage of O’Connor (1997) 59 Cal. App. 4th 877 [Second
Appellate Dist. affirmed the husband’s award of $450,000 in attorney’s fees given that
the wife had at least $40 million in assets while the husband had $2 million in assets].)
Moreover, “[f]inancial resources are only one factor for the court to consider in
determining how to apportion the overall cost of the litigation equitably between the
parties under their relative circumstances.” (§ 2032, subd. (b); see Alan S., supra, 172
Cal.App.4th at p. 254 [“[A] pendente lite fee award should be the product of a nuanced
process in which the trial court should try to get the ‘big picture’ of the case ….
Conversely, determination of a pendente lite attorney[’s] fee order is definitely not a
truncated process where the trial court simply (a) ascertains which party has the higher
nominal income relative to the other, and then (b) massages the fee request of the lesser-
income party into some manageable amount that feels like it will pass an abuse of
discretion test.”].)
“When a request for attorney’s fees and costs is made, the court shall make
findings on whether an award of attorney’s fees and costs under … section [2030] is
appropriate, whether there is a disparity in access to funds to retain counsel, and whether
one party is able to pay for legal representation of both parties. If the findings
demonstrate disparity in access and ability to pay, the court shall make an order awarding
“(m) The criminal conviction of an abusive spouse shall be
considered in making a reduction or elimination of a spousal support award
….
“(n) Any other factors the court determines are just and equitable.”
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attorney’s fees and costs.” (§ 2030, subd. (a)(2).) “The public policy purpose behind
sections 2030 and 2032 is ‘“leveling the playing field” and permitting the lower-earning
spouse to pay counsel and experts to litigate the issues in the same manner as the spouse
with higher earnings.’ [Citation.]” (Tharp, supra, 188 Cal.App.4th at p. 1315.) “‘The
major factors to be considered by a court in fixing a reasonable attorney’s fee [include]
“the nature of the litigation, its difficulty, the amount involved, the skill required and the
skill employed in handling the litigation, the attention given, the success of the attorney’s
efforts, his learning, his age, and his experience in the particular type of work demanded
[citation]; the intricacies and importance of the litigation, the labor and the necessity for
skilled legal training and ability in trying the cause, and the time consumed. [Citations.]”
[Citations.]’ [Citation.]” (In re Marriage of Keech (1999) 75 Cal. App. 4th 860, 870; see
In re Marriage of Huntington (1992) 10 Cal. App. 4th 1513, 1524 [“‘When the trial court
is informed of the extent and nature of the services rendered, it may rely on its own
experience and knowledge in determining their reasonable value.’”].) “‘“The exercise of
sound discretion by the trial court in the matter of attorney’s fees includes also judicial
evaluation of whether counsel’s skill and effort were wisely devoted to the expeditious
disposition of the case.”’ [Citation.] ‘[S]ervices which have no apparent effect other
than to prolong and to complicate domestic litigation cannot be deemed “reasonably
necessary” [citation] “to properly litigate the controversy ….”’ [Citation.]” (In re
Marriage of Turkanis & Price (2013) 213 Cal. App. 4th 332, 356.)
III. The superior court did not abuse its discretion when it awarded
Christine $80,000 in attorney’s fees and $32,000 in costs.
The court did not abuse its discretion when it awarded Christine $80,000 in
attorney’s fees and $32,000 in costs. At the outset, it determined that not all of her
purported $160,000-plus in fees and costs were reasonably necessary. Christine
overspent on appraisers, did not need to hire both Hatherley and Hepperly, and should
have sought a bifurcated hearing. In addition, Hatherley used too many timekeepers to
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bill and overcharged for certain tasks and services. Nevertheless, with regard to the
“relative circumstances of the respective parties” (§ 2032, subd. (a)), the evidence—
viewed in the light most favorable to the order—established Christine’s relative need and
Walter’s ability to pay. According to her income and expense declaration, Christine
earned $6,725 per month,29 spent $12,773 per month, and possessed assets worth
$142,500. According to his income and expense declaration, Walter earned $28,559.21
per month, spent $9,258 per month, and possessed assets worth $1.4 million. Christine’s
expert witnesses confirmed that the division-of-property arrangement set forth in the
mediated MSA largely favored Walter. In fact, two of the properties allocated to him—
Dreiling C and JF Dreiling—were sold in 2011 for a significant profit. Walter also
purchased numerous properties in 2011 and 2012. (See Tharp, supra, 188 Cal.App.4th at
pp. 1313-1314 [“In assessing one party’s relative need and the other party’s ability to
pay, the family court may consider all evidence concerning the parties’ current incomes,
assets, and abilities, including investment and income-producing properties.”].) The
court even suspected that he engaged in dubious accounting practices since he was able to
“lose [hundreds of thousands of dollars] annually and still … increas[e] … cash and
assets.” Walter himself admitted that he did not report the Dreiling C and JF Dreiling
sales proceeds on his 2011 tax return, believing “he could avoid paying the taxes until
2012 through some sort of escrow arrangement ….” (See § 4320, subd. (n) [other just
and equitable factors].) Finally, the court found that “[t]he parties expended significant
time and effort on routine discovery matters which should have involved minimal fees”
“mostly due to Walt[er]’s failure to properly respond to discovery.” (See Tharp, supra,
at p. 1314 [“[I]n determining whether to award attorney[’s] fees to one party, the family
29 Walter insists that Douglas Rivers’s monthly income must be included. (See Alan
S., supra, 172 Cal.App.4th at p. 255 [new mate income not statutorily irrelevant in
pendente lite fee orders].) Even if it were included, however, Walter still earned more
per month.
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court may consider the other party’s trial tactics.”].) A reasonable judge could have
awarded Christine a need-based attorney’s fees and costs award.
IV. The July 11, 2013, and October 24, 2013, awards were just and
reasonable under the relative circumstances of the parties.
In challenging the propriety of the July 11, 2013, and October 24, 2013, awards,
Walter contends that (1) the court “erred in failing to include income of Christine’s
husband when applying the need based criteria”; (2) “Christine failed to establish a need
for attorney[’s] fees”; and (3) the court’s “analysis on Walter’s ability to pay … is driven
by a fundamental misunderstanding of [his] tax returns.” (Boldface and some
capitalization omitted.) We agree with Walter that Douglas’s income should have been
part of the assessment. It appears the court elected not to consider Douglas’s income
even though it determined that the money was available to Christine. This was error.
“[N]ew mate or partner income … is not statutorily irrelevant in pendente lite fee
orders…. The expansive language of section 2032—the ‘relevant circumstances of the
respective parties’— … shows it is certainly relevant for fee awards.” (Alan S., supra,
172 Cal.App.4th at p. 255.)
Notwithstanding this error, however, substantial evidence supported the court’s
findings as to Christine’s relative need and Walter’s ability to pay. The record—viewed
in the light most favorable to the orders—shows that Christine earned $7,047.25 per
month from her small business, rental properties, and royalty and overriding royalty
interests and spent between $10,553.20 and $10,620 per month. Douglas, who paid for
some of the household expenses as well as part of Christine’s legal fees, earned $11,100
per month. Based on these figures, Christine and Douglas had a net monthly income
between $7,527.25 and $7,594.05. On the other hand, according to his May 8, 2013,
income and expense declaration, Walter earned $17,661.26 per month from his farm
work, oil working interests, dividends and interests, rental properties, royalties, and
Social Security and spent only $4,447.17 per month. Based on these figures, he had a net
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monthly income of $13,214.09. While Walter’s September 24, 2013, income and
expense declaration presented a reduced gross monthly income of $15,602.68, his net
monthly income—$11,155.51—still exceeded Christine and Douglas’s combined
amount. Christine had assets worth $949,673.23 at most and could claim a grand total
depreciable basis of $457,936 on her tax returns, but Walter had assets worth over $1.4
million and could claim a grand total depreciable basis of $660,439 on his tax returns.
Whereas Christine used her and Douglas’s savings, credit cards, and home equity lines of
credit to pay her attorneys, Walter principally used his earnings to pay his own.
The record also indicates that Walter, who primarily handled his and Christine’s
financial matters in the course of the marriage, consistently converted sizeable business
income into a minimal or negative amount for tax purposes and acquired assets despite
annual losses. He obtained more valuable properties than Christine under the MSA, sold
two such properties for over $800,000 in 2011, and reinvested the proceeds, but did not
report the sales proceeds on his initial 2011 tax return in an attempt to avoid paying the
taxes until 2012 via an escrow account. In addition, Walter failed to fully comply with
orders to produce documentation relating to income taxes, bank accounts, and business
ventures. (Cf. In re Marriage of Hofer (2012) 208 Cal. App. 4th 454, 458 [“Where a party
unlawfully withholds evidence of his income and assets, he will not be heard to complain
that an order is not based on the evidence he refuses to disclose.”].) A reasonable judge
could deduce that Walter (1) possessed financial savvy; (2) knew how to earn substantial
returns on his investments; and (3) concealed his actual income, which had not been
accurately represented to the court and was plausibly higher. In view of the “‘big picture’
of the case” (Alan S., supra, 172 Cal.App.4th at p. 254), we are not compelled to reverse
the court’s ruling.
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V. The superior court did not abuse its discretion when it awarded
Christine $10,000 in costs for the enforcement of the January 8, 2013,
award.
On January 8, 2013, the court awarded Christine $80,000 in attorney’s fees and
$32,000 in costs pursuant to sections 2030 and 2032. In March 2013, Christine moved
for the immediate payment of the January 8, 2013, award, pointing out that Walter failed
to post an undertaking. On May 6, 2013, the court ruled that an undertaking was needed
to stay execution of the January 8, 2013, attorney’s fees and costs award. Although
Walter maintains that he “immediately took action to get the bond prepared and filed, and
kept Christine’s counsel apprised of the status of that,” an undertaking was not actually
filed until July 30, 2013, nearly three months after the May 6, 2013, order. On
October 24, 2013, the court recognized that Christine “had waited a long time” and
awarded her $10,000 in costs associated with the collection of the January 8, 2013,
award. (Cf. Hogoboom & King, Cal. Practice Guide: Family Law (The Rutter Group
2014) ¶ 14:195, p. 14-66–14-67 [“[T]he opposing party’s dilatory and uncooperative
conduct may justify … [a] need-based fees and costs award ….”].) We find that this
award of costs did not “‘exceed[] the bounds of reason, all of the circumstances … being
considered.’” (Denham v. Superior Court, supra, 2 Cal.3d at p. 566.)
VI. The October 24, 2013, award of attorney’s fees did not contravene the
policy underlying sections 2030 and 2032.
Finally, Walter argues that the October 24, 2013, award of attorney’s fees “was
patently unfair to Walt[er]” because it “d[id] not constitute any effort to level the playing
field to allow a spouse to pay attorney[’s] fee[s], experts and the cost of litigation ….”
We disagree. As noted, upon a finding of disparity in access and ability to pay, the court
must award attorney’s fees and costs in a marital dissolution proceeding and “any
proceeding subsequent to entry of a related judgment.” (§ 2030, subd. (a)(1).) As
previously discussed, substantial evidence supported the court’s findings of Christine’s
relative need and Walter’s ability to pay. The extraordinary writ petition dealt with a
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question—i.e., whether a need-based attorney’s fees and costs award in a family law
proceeding may be bonded and stayed on appeal—that was germane to the issues in this
case.30 A reasonable judge could have awarded Christine attorney’s fees in this instance.
(See Hogoboom & King, Cal. Practice Guide: Family Law, supra, ¶ 16:477, p. 16-132
[either party in a family law writ proceeding may be entitled to need-based attorney’s
fees and costs award under §§ 2030 & 2032].)
DISPOSITION
The January 8, July 11, and October 24, 2013, orders of the superior court are
affirmed. Costs on appeal are awarded to Christine. We dismiss Christine’s cross-
appeal. (See ante, fn. 7.)
_____________________
DETJEN, J.
WE CONCUR:
_____________________
LEVY, Acting P.J.
_____________________
KANE, J.
30 Walter asserts that “the law is clear that the need based attorney’[s] fee award is
the same as a money judgment and can be bonded.” A need-based award under sections
2030 and 2032, however, does not turn on the outcome of a dispute. (See Hogoboom &
King, Cal. Practice Guide: Family Law, supra, ¶ 5:187, p. 5-91.)
50.