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Case of the Month (from CFLR Monthly)

October 2024
[Archive]

Fam C §1101(d)(2)'s exemption from statute of limitation applies to community property, not separate property. . .

 

In a partially published opinion, the Fourth District held Fam C §1101(d)(2)'s exemption from the general statute of limitations concerning breach of fiduciary duty claims applies only to community property claims; thus, most of wife's breach of fiduciary duty claims concerning separate property were barred by the general statute of limitations under CCP §343 [providing four-year statute of limitations to claims for breach of fiduciary duty].

 

In re Marriage of Wiese

(June 20, 2024, as modified July 16, 2024)

California Court of Appeal 4 Civ G060819 & G061168 (Div 3) 102 Cal.App.5th 917, 322 Cal.Rptr.3d 336, 2024 FA 2145, per O'Leary) (Goethals, J., and Gooding, J., concurring). Orange County's Stock), affirmed in part and reversed in part. For W (Appellant): Claudia Ribet and Charles Marriott Kagay. For H (Appellant): Steven E. Briggs, Robert A. Olson, and Jeffrey Edward Raskin. CFLP §J.80.32.

 

Jill and Grant Wiese married in 1987. Grant entered the marriage with real estate assets valued over $2.5 million. Jill, meanwhile, had relatively minimal assets. Shortly before the marriage, the parties executed a premarital agreement (PMA), which provided for the near-total separation of the parties' assets. Under the PMA, Grant was required to provide for the reasonable support of the parties during the marriage. The PMA also required Grant to indemnify Jill "'from and against any and all debts incurred during the marriage by him or by her with his express advance consent.'"

 

The parties' commission agreement. . .
By 1988, Jill began working for Grant's real estate brokerage, with an agreement that she was entitled to 100 percent of her commissions, after deductions for business expenses and income taxes. Although Jill was an independent contractor, Grant did not report her income or issue her a 1099 tax form. Instead, Grant reported her income as that of his corporation, which Grant reported as his own income on the couple's joint tax returns. Jill often disagreed with Grant's deductions and raised the issue with Grant. In response, Grant said that he was basing the deductions on his accountant's recommendations and asked her to speak with the accountant, which she did not do since she believed it would not resolve the issue. Grant never refunded to Jill any amounts withheld.

In November 2014, Jill filed a dissolution petition that included a request that her "'[p]roperty rights be determined'" and that assets "'to be determined'" be confirmed as her separate property. She also sought a determination that the PMA was void.

 

Jill alleges Grant breached his fiduciary duty to her. . .
In her trial brief filed on August 20, 2018, Jill asserted that Grant breached his fiduciary duty to her by wrongfully deducting funds from her real estate commissions. She requested attorney's fees under Fam C §1101(g). In response, Grant argued that Jill's claims concerning her commissions were barred by the statute of limitations under CCP §343 [providing four-year statute of limitations to claims for breach of fiduciary duty]. In turn, Jill argued her claims were timely under Fam C §1101(d)(2) [exempting claims for breach of fiduciary duty involving spouses from otherwise applicable statute of limitations].

After trial, the trial court (Orange County's Stock) concluded that Grant had breached his fiduciary duties to Jill by withholding excessive amounts for taxes from her commissions throughout the marriage. In so ruling, the trial court held that Fam C §1101(d)(2) allowed Jill to bring her claims. The trial court awarded Jill $13 million, plus a 50 percent penalty under Fam C §1101(g). The trial court also ruled that (1) Grant had not breached his fiduciary duty by deducting personal expenses from Jill's commissions; (2) Grant had not breached the PMA's reasonable-support requirements; (3) under the PMA, the mortgage loan on the parties' jointly owned lot was Grant's sole obligation; (4) Jill was obligated to reimburse Grant for her exclusive occupation of the marital home during the separation period; (5) Grant was to pay Jill $15,000 per month in spousal support "'until the death of either party, remarriage of Jill, or further order;'" and (6) Grant must maintain a $2 million life insurance policy to ensure continued support for Jill in case Grant died first. Finally, the trial court ruled that Grant was the prevailing party on the PMA and, thus, required Jill to pay him over $261,000 in fees. However, the trial court also ordered Grant to pay Jill $890,000 for attorney's fees and costs under Fam C §2030 [requiring court to order one party to pay the other party's reasonable attorney's fees, if necessary to ensure equal access to legal representation, based on the respective income and needs of the parties]. Both parties appealed, and, in a partially published opinion, the Fourth District affirmed in part and reversed in part.

 

Fam C §1101(d)(2)'s exemption applies exclusively to community property. . .
In the published part of its opinion, the Fourth District addressed the principal issues on appeal, namely whether the trial court erred in its conclusion that Grant breached his fiduciary duties and its calculation of damages related to these breaches. The justices began by describing the applicable law. Generally, the four-year statute of limitations under CCP §343 applies to claims for breach of fiduciary duty. But Fam C §1101(d) exempts interspousal claims for breach of fiduciary duty. Specifically, Fam C §1101(d)(2) provides "An action may be commenced under this section upon the death of a spouse or in conjunction with an action for legal separation, dissolution of marriage, or nullity without regard to the time limitations set forth in paragraph (1)."

For several reasons, the justices concluded that Fam C §1101(d)(2)'s exemption from the general statute of limitation applies only to community property claims and not claims involving separate property. First, the justices observed that case precedent holds that Fam C §1101 deals "'exclusively'" with community property. For example, in In re Marriage of Simmons (2013) 215 Cal.App.4th 584, 155 Cal.Rptr.3d 685, the Fourth District held that Fam C §1101(h) applied only to the nondisclosure of community property and not to the nondisclosure of separate property, despite the provision's reference to "'any asset.'" In support of its conclusion, the Simmons court noted the placement of the section "'in a portion of the Family Code that exclusively concerns matters associated with community property.'" In In re Schleich (2017) 8 Cal.App.5th 267, 213 Cal.Rptr.3d 665, the Sixth District also concluded that Fam C §1101 concerned community property exclusively, despite the omission of any reference to community property in Fam C §1101(g) and (h).

Second, the justices noted that the statutory framework as a whole supports their conclusion that the statute concerns breaches of community property only. For example, Fam C §1101(g) provides for an award of 50 percent of an asset that was undisclosed or transferred in breach of the fiduciary duty. This award is intended to preserve a spouse's one-half interest in the asset in question. However, where malice, oppression, or fraud exists, Fam C §1101(h) adds the offending spouse's 50 percent share, thereby awarding the claimant spouse 100 percent of an asset. The justices reasoned that "[i]n the context of claims involving the misappropriation of separate property, this framework would make little sense, as the claimant spouse would be entitled to 100 percent of the affected asset regardless of any malice, oppression, or fraud."

And third, the justices noted legislative history further supports their conclusion. For example, the Senate Committee on the Judiciary report addressing the bill that amended Fam C §1101 to its current form described existing law as providing that "'when a court finds a spouse has breached a fiduciary duty to the other spouse regarding management of community property…the remedies for the breach shall include, but shall not be limited to, an award to the claimant spouse of 50 percent' of the affected asset."

With these legal principles in mind, the justices concluded the four-year statute of limitations under CCP §343 applied. Since Jill raised her fiduciary duty claims for the first time in her trial brief filed on August 20, 2018, the statute barred claims that accrued before August 20, 2014. Although the justices stated they would leave to the trial court the precise determination of which of Jill's claims were timely, they observed "most of Jill's fiduciary duty claims are barred by the applicable four-year statute of limitations." In so concluding, the justices rejected Jill's argument that her dissolution petition filed in November 2014 stopped the running of the statute of limitations, noting that Jill's petition asked only that her "'[p]roperty rights be determined'" and that assets "'to be determined'" be confirmed as her separate property. According to the panel, these requests "gave Grant no notice of the facts underlying Jill's subsequent fiduciary claims based on wrongful deductions from her commissions."

In the unpublished part of its opinion, the justices first held the trial court correctly concluded Grant breached his fiduciary duty by over-withholding for taxes. In so holding, the justices rejected Grant's argument that Jill was not taken advantage of insofar as she benefited from his withholding practices, since she would have paid much more in taxes if she had received a 1099 form and filed taxes separately. Addressing this argument, the justices noted that the commission agreement "did not authorize Grant to keep to himself amounts Jill would have paid in income tax and self-employment tax under a hypothetical scenario." Instead, the appropriate benchmark to determine the amount of over-withholding of taxes is the amount of actual taxes that the parties paid based on Jill's commissions, not on the hypothetical amount of taxes that Jill would have paid if she had filed separately.

Turning to the issue of damages, the justices first concluded that the trial court erred by awarding Jill the entire amount of the estimated tax withholdings rather than the amount by which they exceeded the couple's effective tax rate, noting that the trial court can calculate the excess amounts using the couple's tax documents containing their effective tax rates for the years in question. The justices also concluded that the trial court neither erred by concluding that, on average, Grant withheld 30 percent from Jill's commissions nor by declining to award Jill prejudgment interest. In the former instance, the justices noted 30 percent was reasonable based on Grant's testimony and the few commission statements that were admitted into evidence. In the latter instance, the justices noted that CC §3287(a) does not authorize prejudgment interest where the amount of damages depends upon a judicial determination based upon conflicting evidence. Here, the damages in question were not certain for purposes of CC §3287(a) since the trial court's selection of the 30 percent withholding rate "was not based on an arithmetic calculation." The justices further noted, however, that if circumstances on remand allow the trial court to determine Grant's actual withholdings based on undisputed evidence, and damages are certain, the trial court must award interest. Finally, staying on the matter of damages, the justices held that the trial court did not err by declining to include an appreciation factor in its award, since there was no evidence that Grant reinvested the excess amounts withheld from Jill's commissions.

The justices next concluded that the trial court must reconsider Jill's claim concerning Grant's deduction of personal expenses. In reaching this conclusion, the justices noted that the trial court appeared to reject Jill's claim after finding "that the commission agreement was unusually favorable to Jill in providing her 100 percent of commissions collected." But as the justices noted, "favorable or not, this is what the parties agreed to[.]"

The justices then held that the trial court did not err by concluding that Grant was not required to provide Jill additional funding for her retirement. First, the PMA did not require Grant to provide for Jill's future retirement needs. Instead, the PMA expressly applied only "'during their marriage.'" Second, the justices rejected Jill's argument that, under the promissory estoppel doctrine, Grant was required to provide for Jill's retirement needs after their divorce based on his statements that he was "'[t]rying to build wealth for the family'" and was "'investing for the family's future.'" According to the justices, Jill's argument fails since "Grant's statements could not be reasonably understood to assure Jill that he was saving for her future needs even if they divorce and she was therefore no longer part of his family."

The justices next concluded that the trial court did not err by failing to consider Grant's separate-property savings and investments when determining Jill's marital standard of living. First, the justices noted that Jill failed to cite any authority supporting her claim that the trial court was required to make this consideration, noting that all of the cases that Jill cited to involved a couple's community-property savings or the supported spouse's separate savings. Second, the justices noted that the trial court did, in fact, consider Jill's retirement needs. For example, after finding that Jill had "'no retirement savings…or any significant investments,'" the trial court proceeded to award her a significant amount of spousal support. The trial court further ordered Grant to maintain a $2 million life insurance policy to ensure continued support for Jill in case he died first.

Turning then to the trial court's rulings concerning the parties' real property, the justices first held that the trial court did not err by assigning Grant sole liability for the mortgage on the jointly owned lot. In so concluding the justices noted that the PMA required Grant to "'indemnify Jill from and against any and all debts incurred during the marriage by him or by her with his express advance consent.'" Grant's signature on the loan documents, which included Jill's signature as well, indicated his agreement to Jill's undertaking of the debt. The justices also held the trial court erred by requiring Jill to reimburse Grant for occupying the marital home during the separation period. Here, the justices noted that the PMA required Grant to "'provide for the reasonable support of the parties during the marriage' so that it 'shall not be necessary for Jill to sue any of her property for such purpose.'" The justices rejected Grant's argument that "'during the marriage'" should have been construed to mean "'while living together as spouses.'" Instead, the justices noted that a marriage ends only upon the death of one of the spouses or a judgment of dissolution or nullity of the marriage.

 

Trial court must reconsider which party is the prevailing party. . .
Lastly, the panel addressed the trial court's ruling related to the award of attorney's fees. First, the justices concluded the trial court must reconsider the issue of contractual attorney's fees awarded pursuant to CC §1717 in light of the changes to the judgment. More specifically, the justices instructed that on remand the trial court must reconsider which party, if any, is the prevailing party under the PMA after comparing the parties' respective successes on appeal and on remand. And second, the justices concluded the trial court did not abuse its discretion in setting the award of fees and costs under Fam C §2030. In ruling on this matter, the justices found the trial court reasonably reduced its award after determining that Jill litigated meritless claims and based on her excessive use of attorney hours.

Accordingly, the Fourth District affirmed in part and reversed in part. The Fourth District further remanded to the trial court to (1) determine which of Jill's tax-withholding claims were timely filed under CCP §343; (2) calculate Jill's damages for the timely claims and consider whether it should award prejudgment interest; (3) determine whether Jill has proved her claims concerning Grant's deductions for her personal expenses by showing that he made unilateral deductions; (4) modify the judgment to reflect that Jill was not required to reimburse Grant for occupying the marital home during the separation period; and (5) reconsider its determination that Grant was the prevailing party on the PMA in light of changes to the judgment.

 

 

COMMENT:

  

In Jill's appellate brief, she stated that in addition to the $1.6 million that she incurred in attorney's fees, she also incurred $300,000 in expert fees. Yet the trial court made no award at all for expert fees. After the appellate opinion was filed on June 20, 2024, Jill filed a petition for rehearing, alleging that the appellate court failed to separately address her contention that she was entitled to these expert fees as costs pursuant to Fam C §2030. In a modified opinion published July 16, 2024, the Fourth District clarified that its analysis pertaining to Jill's request for attorney's fees also pertained to her request for costs. The justices also concluded that Jill forfeited her argument since she failed to show that a different analysis should apply to these costs.

 

Library References
11 Witkin, Summary of Cal. Law (11th ed. 2024) Com. Prop., § 232
Hogoboom & King, Cal. Practice Guide: Family Law (The Rutter Group) ¶ 8:576

 

 

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