Marriage of Pitto and
Behrendt
Filed 6/29/12
Marriage of Pitto and Behrendt CA1/3
OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits
courts and parties from citing or relying on opinions not certified for
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publication or ordered published for purposes of rule 8.1115
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
FIRST APPELLATE DISTRICT
DIVISION THREE
In re the Marriage of J. RUSSELL PITTO and VALERIE BEHRENDT.
J. RUSSELL PITTO,
Respondent,
v.
VALERIE BEHRENDT,
Appellant.
A126802 and A127429
(Marin County
Super. Ct. No. FL062618)
These appeals
by Valerie Behrendt (Valerie), two of the many she has filed in this heavily
litigated case, come to us following entry of final judgment on the
filed by respondent J. Russell Pitto (Russ).
Factual and Procedural Background
In
brief, the facts underlying how this relatively short marriage ended in a
dissolution that has consumed millions of dollars in legal fees are as
follows: When Valerie and Russ first met
in December 1994, they were persons of different ages and means — Valerie was
25 years old and a struggling single mother with a one-year old daughter; Russ
was almost twice her age, an experienced and successful businessman who had
amassed considerable wealth through his activities as a real estate
developer. They began a romantic
relationship in 1995, at which time Valerie worked as executive assistant to
Russ at his real estate development company, Simeon Properties. During this time, Russ was in the process of
divorcing from Sheila Pitto. Russ
married Sheila Pitto in 1983 and they had two boys, born in 1986 and 1993.
Valerie and Russ were engaged to be
married in 1999 and set the wedding date for September 4 of that year. Russ told Valerie he had just concluded an
“amicable†split of his assets with Sheila and that his business, Simeon
Properties, was “really starting to take off,†so he did not want to enter
marriage with her unless they had a prenuptial agreement that would eliminate community
property from their marriage. Valerie
was “totally on board†with this approach.
When it appeared a prenuptial agreement could not be concluded before
the date of the marriage, Russ consulted his attorney, Max Gutierrez. Gutierrez advised Russ to postpone the
wedding or go ahead as scheduled with a commitment from Valerie to enter a PMA
after the wedding. Russ decided to
proceed with the wedding and Valerie agreed they would conclude a PMA
afterwards.
Shortly after the wedding, Valerie
consulted family law attorney Susan Coates regarding the PMA. Gutierrez sent Coates a copy of the
prenuptial agreement the parties had prepared before the wedding along with
financial disclosures. Coates advised
Gutierrez the language of the prenuptial
agreement should be revised to reflect the agreement was now
post-marital. She also suggested that
the agreement be put on hold until Russ’s marital settlement agreement with
Sheila Pitto was finalized, so Coates would have a clearer idea of Russ’s
estate and support obligations. Russ
agreed to Coates’ proposal to postpone the PMA until a marital settlement
agreement with Sheila Pitto was finalized.
The process of formalizing a PMA
resumed in October 2002, when Gutierrez sent Coates a draft PMA and financial
disclosures, including a copy of Russ’s marital settlement agreement with
Sheila Pitto. The PMA went through
several more drafts to clarify certain provisions and resolve points of
negotiation between the parties, such as whether Valerie would get to keep the
family home if Russ died during the marriage.
In March 2005, a “four-way†meeting took place in Gutierrez’s office
attended by Russ, Valerie, Gutierrez and Coates to discuss remaining
issues. On March 29, 2005, Gutierrez transmitted to Coates via email a “red-line copy†of the
PMA showing changes made by Gutierrez following the “four-way†meeting. These included provisions requested by
Valerie for an automobile and a lump sum for furnishing expenses in the event
of dissolution and a 12-month occupancy in the family residence on the event of
Russ’s death. On May 20, Gutierrez
authorized his paralegal to transmit to Coates via email the revised PMA,
together with an attachment reflecting Ross’s updated financial statement as of
April 30, 2005. The text of the email
stated, “Please let us know if this agreement is acceptable, and we will
prepare execution copies.†On May 27,
Gutierrez received an email from Valerie, which was also addressed to Russ and
Coates, stating, “Susan [Coates], if you have read it and are fine with it, I
am fine with it.†Thereafter, the final
PMA document was prepared and each party executed the document on or about
June 14, 2005.
Russ
filed a petition for dissolution of his marriage to Valerie on June 19, 2006,
citing irreconcilable differences. The
petition lists the date of the marriage, September 4, 1999, the date of
separation, June 1, 2006, and states there are no minor children of the
marriage. In December 2007, Russ filed a
motion to bifurcate the issue of the validity of a post-marital agreement (PMA)
entered into by the parties. In his
motion, Russ stated among other things that the PMA controls the
characterization and division of marital property at dissolution and asserted
that early resolution of the validity and interpretation of the PMA would
increase the likelihood of settlement.
The trial court granted Russ’s bifurcation motion in February 2008. Prior to the first phase of trial
proceedings, both parties filed lengthy trial briefs on the interpretation and
validity of the PMA. The first phase of
trial proceedings commenced on August 22, 2008.
As an initial matter, the parties having already submitted briefs on the
meaning of the language in the PMA, the court entertained oral argument on the
legal question of the validity of the PMA.
After hearing argument of counsel, the court ruled from the bench,
concluding that the PMA constituted a valid transmutation instrument under
Family Code,
title="">[3] section 852.
Following its ruling on the validity
of the PMA, the court heard testimony and received evidence over the course of
eight days on issues of whether there was undue influence or duress in the
execution of the PMA. The court heard
testimony from Russ and Valerie, as well as Max Gutierrez and Susan Coates, the
parties’ respective attorneys who represented them in the matter of the PMA.
statement of decision (SOD) following the first phase of trial
proceedings. In the SOD, the trial court
affirmed its oral rulings that the PMA satisfied the requirements of section
852 and that pursuant to the PMA each party waived any community property claim
in the earnings, income and acquisitions of the other. The court further concluded Valerie was not
unduly influenced to enter the PMA, Valerie was not induced to enter the PMA by
fraud or concealment and Russ did not materially breach the PMA.
Phase two of the trial proceedings
commenced on April 20, 2009, and was conducted over a four-day period. In phase two, the trial court heard testimony
and received evidence concerning the amount due to Valerie under the PMA,
permanent spousal support and an educational trust set up by Russ for Valerie’s
young daughter. After issuing a proposed
statement of decision in July 2009 and receiving Valerie’s objections to the
same, the court issued a phase-two statement of decision (SOD2) on September 9,
2009.
In SOD2, the trial court determined
the amount due to Valerie under the PMA and the offsets on that amount due to
Russ. Specifically, the court ruled that
Valerie was due $678,904 under the terms of the PMA, offset by reimbursements
to Russ of $29,000 for stock he purchased on behalf of Valerie for her business
venture in a company named “Bare Escentuals,†$25,000 advanced
to Valerie under the PMA and $57,000 in Epstein
adjustments for the period June 2006 through October 2007. The court also deducted $389,034 in attorney
fees and costs payable by Valerie under Phase One for a net amount due to
Valerie under the PMA of $178,870.
Regarding spousal support, SOD2
notes the parties enjoyed an affluent lifestyle during their marriage and have
been living separate and apart since June 2006.
Valerie has marketable skills allowing her to earn in the range of
$52,000 per year. Due to an “economic
freefall†in real estate, Russ currently has negative cash flow in excess of
$1,000,000. The account upon which Russ
draws to keep his business running and to meet mortgage and other obligations is
also subject to capital calls on his real estate projects should their incomes
fall short of expenses. Russ has real
estate holdings that could be liquidated.
The court concluded that overall Russ had sufficient resources to pay
reasonable support. Regarding the length
of the marriage, the court found that the parties harbored hopes of
reconciliation after separating and a complete and final break did not occur
until June 2007, meaning the marriage lasted seven years and eight months. Based on these and other factors, the court
found that although Valerie “has enjoyed a substantial period of support at a
relatively high level for three years on a marriage that was, at most, just
seven and a half years in duration, it is not inappropriate for Wife to continue
to receive [] support while she transitions toward self-supporting status.â€
On September 24, 2009, the court
held a hearing to address the issue of attorney fees pertaining to phase two of
the trial proceedings. On November 24,
2009, the court filed its findings and orders after hearing. The court rejected Valerie’s claim of
$183,000 in attorney fees. Instead, the
court awarded Valerie $85,000 as “a just and reasonable attorney fee award
under [Family Code section 2030] for Phase Two.†Also, the court awarded Russ $40,000 in
attorneys fees pursuant to section 271.
On November 24, 2009, the trial
court also filed a final judgment, incorporating the findings and conclusions
from its SOD, SOD2 and its fee orders.
Valerie filed the notice of appeal in case number A127429 on January 19,
2010.
Discussion
Family Code Section 852
A transmutation is “an interspousal
transaction or agreement which works a change in the character of the property.†(In re
Marriage of Haines (1995) 33 Cal.App.4th 277, 293.) Whether a valid transmutation has been made
is governed by section 852, subdivision (a), which provides: “A transmutation of real or personal property
is not valid unless made in writing by an
express declaration that is made, joined in, consented to, or accepted by
the spouse whose interest in the property is adversely affected.†(Id.
italics added.) Whereas “[a]n ‘express
declaration’ does not require use of the terms ‘transmutation,’ ‘community
property,’ ‘separate property,’ or a particular locution [Citation],
. . . [t]he express declaration must unambiguously indicate a change
in character or ownership of property. [Citation.] A party does not ‘slip into
a transmutation by accident.’ [Citation.]â€
(In re marriage of Starkman
(2005) 129 Cal.App.4th 659, 664.) As
explained in Estate of MacDonald
(1990) 51 Cal.3d 262 (MacDonald), “a
writing signed by the adversely affected spouse is not an ‘express declaration’
[for transmutation purposes] . . . unless it contains language which expressly states that the
characterization or ownership of the property is being changed.†(Id.
at p. 272; In re Marriage of Benson
(2005) 36 Cal.4th 1096, 1107 (Benson)
[stating that under MacDonald a valid
transmutation “necessitates not only a writing, but a special kind of writing,
i.e., one in which the adversely affected spouse expresses a clear
understanding that the document changes the character or ownership of specific
propertyâ€)].) Moreover, “ ‘[t]he determination
whether the language of a writing purporting to transmute property meets the
to the writing itself, without resort to parol evidence.’ †(In re
Marriage of Leni (2006) 144 Cal.App.4th 1087, 1096, citing
p. 1107; see also id. at
p. 1106 [“the writing must reflect a transmutation on its face, and must
eliminate the need to consider other evidence in divining this intentâ€].) The trial court’s determination of whether a
written document constitutes a transmutation is subject to de novo review. (In re
Marriage of Barneson (1999) 69 Cal.App.4th 583, 588.)
The
operative provisions of the PMA are preceded by recitals A-N. Recital B states: “The parties entered into their marriage
because of the love and affection each has for the other and neither was
interested in acquiring any interest in the property of the other earned prior
to the marriage.†Recital C states that
just prior to their marriage, Russ and Valerie were negotiating the terms of a
Premarital agreement, which could not be concluded because Russ was still
involved in proceedings relating to the dissolution of his marriage to Sheila
Pitto, and accordingly they deferred the agreement until after their marriage
and after Russ concluded the property division from his prior marriage. Recital D states that the parties “desire to
resume the process through which they shall define their respective property
rights consistent with the understanding which they had reached prior to their
marriage and to enter into this [PMA].â€
Recital E states that “[e]ach of the
parties presently owns property standing in their respective names, the nature
and extent of which has been fully disclosed by each to the other†and recitals
F and G state that the assets and liabilities of the parties are described in
Schedules A (Russ) and B (Valerie) attached to the PMA. Recital I states, “The parties desire that
all property owned by either of them at the time of the marriage and all property
coming to them from whatever source during the marriage shall be their
respective separate property,†and recital L states that “[t]he parties desire
that all earnings and income resulting from their personal services, skill,
effort and work since the date of the marriage, shall be their respective
separate property.â€
Recitals J states, “The parties
intend that if they are married and living together and neither has filed and
served a petition for divorce, dissolution or legal separation at the time of
either party’s death, Russ intends to make certain provisions for Valerie at
his death.†In the event of divorce,
dissolution or legal separation, recital K states that the parties “intend to
make certain provisions for Valerie.â€
Following the recitals, the PMA
states that “in consideration of the premises and the mutual promises contained
herein, the parties agree as follows. . . .†The terms of the agreement are set forth in paragraphs
1-19. Paragraph 1 states: “All property, real and personal, of
whatsoever nature and wheresoever situated, owned by Russ at the commencement
of the marriage or acquired by him during
the marriage, including, but not limited to, all rents, issues, profits and
proceeds thereof, and all appreciation in the value of such property and
earnings and income occurring during the marriage, whether or not resulting
from his personal services, skill, effort and work, or from the personal services, skill, effort and work of Valerie,
shall be his separate property and shall be enjoyed by him and shall be subject
to his disposition as his separate property in the same manner as though the
parties had never entered into the [] marriage.
Valerie acknowledges that she understands that, except for this
Agreement, the appreciation, earnings and
income resulting from the personal services, skill, effort and work of Russ or
Valerie rendered after the marriage would be community property or
quasi-community property under the laws of the State of California, and
might be characterized as marital property subject to equitable distribution
under the laws of many states of the United States, but that by this Agreement such appreciation, earnings and income is
made his separate property.â€
Paragraph 2 is identical to paragraph 1, except that “Valerie†is
substituted for “Russ†and the applicable objective pronouns and possessive
adjectives change from masculine to feminine.
Paragraph 4 addresses the parties’
agreement in the event of divorce or dissolution of the marriage. Paragraph 4 provides that “in lieu of any
property rights to which Valerie might have otherwise been entitled, Valerie
will receive in full and complete satisfaction of all property rights†a
tax-free lump sum payment consisting of (1) “title to the automobile then
currently being used as her primary mode of transportation, and the sum of
$25,000 for the purpose of furnishing and decorating her new home†and
(2) a sum for each year of the marriage plus “a prorata portion thereof for any year during which they were married
for less than 12 months thereof.†As
provided in paragraph 4, the sum for each year of marriage received by Valerie
upon termination of the marriage increases with the length of the
marriage—$50,000 per year during the first five years of marriage; $100,000 per
year if the marriage lasts more than 5 but less than 10 years; $150,000 if the
marriage lasts more than 10 but less than 15 years; and $200,000 for each year
after 15 years, with a maximum payment of no more than 25% of the fair market
value of Russ’s estate, net of liabilities, at the date of termination of the
marriage.
Paragraphs 5 and 6 address the
parties’ agreement regarding provisions for Valerie in the event Russ dies
during the marriage. Specifically,
paragraph 5 provides Valerie shall be entitled to occupy the residence at 70
Peninsula Road, Belvedere, for 12 months rent-free from the date of Russ’s
death. Paragraph 6 provides that Valerie
shall be entitled to receive a “fractional interest (hereinafter called the
marital amount)†equal to 15% of the net value of Russ’s estate if Russ dies
during the first 15 years of marriage and 25% of the net value of Russ’s estate
if Russ dies after the first 15 years of marriage.
Valerie contends the PMA does not
satisfy the requirements for a transmutation document. However, our de novo review of the PMA under
the standards set forth above leads us to the opposite conclusion. (See In
re Marriage of Starkman, supra, 129 Cal.App.4th at p. 664 [in deciding
whether a transmutation has occurred, appellate court interprets “the written
instruments independently, without resort to extrinsic evidenceâ€].) Rather, interpreting the PMA as a whole (see
Cal.App.4th 40, 51), we conclude that it constitutes a transmutation by which
any community property interests inhering in the assets and liabilities
described in Schedules A and B at the date of the PMA become the separate
property of the respective parties, and all appreciation in the value of such
property during the marriage, as well as all each of the party’s earnings and
income during the marriage, are the separate property of each party in which
the other party has no community property rights.
Our conclusion is founded on the
plain language of the PMA, beginning with
recitals stating the parties desire that “all property owned by either
of them at the time of the marriage and all property coming to them from
whatever source during the marriage shall be their respective separate
property†and that “all earnings and income resulting from their personal
services, skill, effort and work since the date of the marriage, shall be their
respective separate property.†Schedules
A and B list the assets and liabilities that Russ and Valerie “presently owns
[] standing in their respective names.â€
Paragraphs 1 and 2 give effect to goals and objectives set forth in the
recitals by providing that property owned by Russ and Valerie at the
commencement of the marriage, or acquired during the marriage, is each one’s
separate property. Further, paragraphs 1
and 2 provide that “all appreciation in the value of†such separate property,
whether or not the appreciation results from the efforts of one or both
parties, also constitutes separate property.
In addition, paragraph 1 states in
pertinent part, “Valerie acknowledges that she understands that, except for
this Agreement, the appreciation, earnings and income resulting from the
personal services, skill, effort and work of Russ or Valerie rendered after the
marriage would be community property or quasi-community property under the laws
of the State of California, and might be characterized as marital property
subject to equitable distribution under the laws of many states of the United
States, but that by this Agreement such appreciation, earnings and income is
made his separate property.†This language reflects a clear understanding on
Valerie’s part that any community property inhering in the assets and
liabilities held by Russ at the time of the PMA is transmuted to his separate
property. (See In re Marriage of Benson, supra, 36 Cal.4th at p. 1107
[stating that a valid transmutation “necessitates . . . a writing
. . . in which the adversely affected spouse expresses a clear
understanding that the document changes the character or ownership of specific
property].) Finally, paragraph 4
(describing the lump sum Valerie receives “in full and complete satisfaction of
all property rights†in the event of a dissolution of the marriage) and
paragraphs 5-6 (describing provisions for Valerie in the event Russ dies during
the marriage) further evince the parties’ intent that Valerie forego any
community interests in the marriage in return for the specific benefits
provided under the PMA.
In sum, having reviewed the PMA de
novo, we conclude the PMA satisfies section 850 because it contains “the
requisite express, unequivocal declarations of a present transmutation.†(In re
Marriage of Holtemann (2008) 166 Cal.App.4th 1166, 1173.)
Valerie’s
contentions to the contrary, which we address below, are unpersuasive.
Valerie asserts paragraphs 1 and 2
are ambiguous because they do not describe “what specific property is being
made separate property.†We
disagree. As we concluded above, paragraph
1 clearly provides that any community property that may have accrued in the
separate property of Russ at the time of the PMA through the efforts and skill
of Valerie “is made†Russ’s separate property.
supra, 36 Cal.4th at p. 1100 [noting a writing satisfies the express
declaration requirement “if it states on its face that a change in the
character or ownership of the subject property is being madeâ€], citing
p. 264.)
Also, Valerie argues the PMA did not
effect a transmutation because it is merely a “conditional future
transmutation†and suggests that any “attempt to transmute future income is
prohibited,†relying on In re Marriage of
Lund, supra, 174 Cal.App.4th 40 and
In re Marriage of Holtemann, supra
166 Cal.App.4th 1166. However, neither
case supports the proposition, advanced by Valerie, that a transmutation cannot
include future income streams; indeed, case law is to the contrary (see, e.g.,
Cal.App.4th at pp. 1170 [upholding an agreement stating that “property
described in Exhibit A (including any future rents, issues, profits, and
proceeds of that property) is hereby transmuted from [husband’s] separate
property to the community property of both partiesâ€]).
Furthermore, Valerie contends that
the plain language of the PMA cannot support the trial court’s conclusion,
which we share, that the PMA transmutes any community property that may have
been created into each party’s separate property. In this regard, Valerie notes paragraphs 1
and 2 contain identical language stating, as to each party, “All property, real
and personal, . . . owned by [RUSS or VALERIE] at the commencement of
the marriage or acquired by [him or
her] during the marriage, . . . shall be [his or her] separate property. . . .†Valerie argues that by law all property
marriage is community property.
name="_ftnref10" title="">[10] Moreover, she continues, the trial court
could not reasonably interpret paragraph 2 to find that her community property,
arising from Russ’s skill and effort, was Russ’s separate property. Thus, Valerie concludes the reasonable interpretation of paragraph 1 and
2 is these paragraphs effect a transmutation of “the community property Russ
and Valerie acquired by operation of law into their separate property as of the
date of the agreement.†Valerie also
asserts that the trial court could not
reasonably interpret the PMA in a manner that preempts the creation of
community property where, as here, the PMA was entered into after the marriage
took effect.
Her argument lacks merit. As an initial matter, Valerie’s suggestion
that because the word “acquires†appears in both the PMA and section 760, the
statute controls our interpretation of the language in dispute, is at odds with
the language of section 760. Patently,
section 760 controls in the absence
of a written agreement such as the PMA.
(See § 850 [married persons may agree, inter alia, to transmute
community property to separate property of either spouse].)
More tellingly, the interpretation
Valerie ascribes to the language of paragraphs 1 and 2 is wholly
unreasonable when these reciprocal provisions are considered as a whole and in
light of the recitals preceding them. In
this regard, the recitals cut against any assumption, crucial to Valerie’s
position, that the parties intended to enter a community property
marriage. For example, the recitals
state that the parties desire to resume the process that they began in the
premarital agreement and specifically state that “all property owned by either
of them at the time of the marriage and all property coming to them from
whatever source during the marriage shall be their respective separate
property.†Moreover, paragraphs 1 and 2
are consistent with the intent of the parties as stated in the recitals. For example, the agreements set forth therein
provide that any property owned by either spouse at the time of the marriage or
acquired thereafter would be the separate property of each spouse, “
the [] marriage†and that
separate property includes the appreciation, earnings and income from property
owned and acquired by that party resulting from the personal skills, services
and efforts of either party. In sum, the comprehensive nature of the
agreements on the character of all real and personal property acquired before
or after the marriage, coupled with the recitals preceding those agreements,
rule out Valerie’s interpretation of the PMA.
Finally, Valerie’s attempt to assign
meaning to language out of context is unavailing. According to Valerie, paragraph 2 means
community property created by Russ’s efforts became Valerie’s separate
property. Again, we disagree. The language Valerie refers to in paragraph 2
addresses the situation where one spouse’s efforts contribute to an increase in
the value of the other spouse’s separate property; whereas such an increase in
value normally results in a community interest (In re Marriage of Dekker (1993) 17 Cal.App.4th 842, 851 [“The
community is entitled to the increase in profits attributable to community
endeavorâ€]), here the PMA denominates the increase as the separate property of
the original owner.
To recap, we have reviewed the PMA
de novo and conclude that the PMA
contains “the requisite express, unequivocal declarations of a present
transmutation.†(In re Marriage of Holtemann, supra, 166 Cal.App.4th at
p. 1173.) Rendering our independent
interpretation of the PMA without recourse to extrinsic evidence (see
Cal.App.4th at p. 664), we conclude the PMA effects a transmutation by
which any community property interests inhering in the assets and liabilities
described in schedules A and B at the date of the PMA became the separate
property of the respective parties, and all appreciation in the value of such
property during the marriage, as well as all each of the party’s earnings and
income during the marriage, are the separate property of each party in which
the other party has no community property rights. In light of our interpretation and
conclusions on the nature and effect of the PMA, Valerie’s remaining assertions
that the PMA does not satisfy section 852 necessarily fail.
B. Undue
Influence
Our conclusion that the PMA meets
the requirements of Family Code section 852 does not settle the issue of its
validity. For a transmutation between
spouses to be valid, it must also satisfy the rules governing fiduciary
relationships set forth in Family Code section 721. (See In
re Marriage of Barneson, supra, 69 Cal.App.4th at p. 588 [“the
requirements of section 852 are prerequisites to a valid transmutation but do
not necessarily in and of themselves determine whether a valid transmutation
has occurred]â€). Under section 721,
spouses “may enter into any transaction with the other, or with any other
person, respecting property, which either might if unmarried.†(§ 721,
subd. (a).) “[I]n transactions between
themselves, a husband and wife are subject to the general rules governing
fiduciary relationships which 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.â€
(§ 721, subd. (b).)
“ ‘When an interspousal transaction advantages one spouse, “[t]he
law, from considerations of public policy, presumes such transactions to have been
induced by undue influence.†[Citation.] “Courts of equity . . . view
gifts and contracts which are made or take place between parties occupying
confidential relations with a jealous eye.†’ [Citation.]†(In re
Marriage of Lund, supra, 174
Cal.App.4th at p. 55.) Further, “
‘[w]hen a presumption of undue influence applies to a transaction, the spouse
who was advantaged by the transaction must establish that the disadvantaged
spouse’s action “was freely and voluntarily made, with a full knowledge of all
the facts, and with a complete understanding of the effect of†the
transaction.’ [Citation.]†(
“ ‘ “[W]hether the spouse
gaining an advantage has overcome the presumption of undue influence is a
question for the trier of fact, whose decision will not be reversed on appeal
if supported by substantial evidence.†’ [Citation.]†(In re
Marriage of Lund, supra, 174 Cal.App.4th at p. 55.) Under the substantial evidence standard of
review, “ ‘ “we have no power to judge of the effect or value of the
evidence, to weigh the evidence, to consider the credibility of the witnesses,
or to resolve conflicts in the evidence or in the reasonable inferences that
may be drawn therefrom.†[Citations.]’ [Citation.]†(In re
Marriage of Schnabel (1994) 30 Cal.App.4th 747, 752.)
Here, the trial court found that as
the party advantaged by the PMA, Russ “must carry the burden of rebutting the
presumption of undue influence†and that he “met his burden of proof that no
undue influence existed.†The trial
court heard testimony from Russ and Valerie as well as testimony from the
attorneys who represented Russ and Valerie during the process of formulating
the PMA, Max Gutierrez and Susan Coates, respectively.
made express findings on each of the three factors . . . that rebut
the presumption of undue influence: “the
transaction was entered into freely and voluntarily, with full knowledge of the
facts, and with a complete understanding of its legal effect.†(In re
Marriage of Burkle (2006) 139
Cal.App.4th 712, 739.) Valerie contests
the trial court’s finding, contending Russ did not overcome the presumption of
undue influence. We find Valerie's
contention unavailing as substantial evidence supports the court’s conclusion
that Russ overcame the presumption of undue influence.
The court cited numerous grounds in
support of its determination that Valerie entered the agreement freely and
voluntarily. For example, the court
rejected Valerie’s claim she signed the PMA because Russ threatened to divorce
her, deeming “Russ credibly testified, and emails between the parties confirm,
that there were other larger issues in their marriage†and finding Valerie’s
claim she only signed the PMA to save her marriage “lacks credibility.†The trial court’s ruling on this point is
borne out by Russ’s testimony that he and Valerie attended family counseling
more than 20 times in 2003 and again in 2005 because “there were many
issues. The [PMA] was not that big of an
issue. The other things were really
important.†Russ identified emails he
wrote to Valerie in November 2003, in which he describes perceived emotional
deficits in their personal relationship and suggests how they could resuscitate
their marriage. Russ stated they were
“headed in [the] direction†of separating at that point. Their relationship was back on an even keel
in 2004; Russ described 2004 as “a good year for Valerie and I. We were building a house and there was no
counseling and we were just moving along.â€
Indeed, in February 2005, Valerie sent an email to Gutierrez stating,
“Let’s get Susan [Coates] and set up a meeting. . . . Russ and I are in agreement on basic points,
with just some clarification needed on how to handle my living in the house in
the event of [his] death.â€
Furthermore, the court found
Valerie’s claim that she lacked knowledge and understanding of the agreement
was not credible in light of “consultation with no less than three family law
specialists, five and a half years of negotiation, several drafts, and plain
language in the agreement.†On this
point, the trial court also found that Valerie had “full access to financial
information†and negotiated “several modifications to the PMA.†Also, the court found Valerie understood she
was giving up community property rights based, inter alia, on evidence of her
premarital discussions with Russ, the language of the PMA, and “the scheme of
Valerie having set payments after dissolution of the marriage or a percentage
of Russ’s estate in the event of his death.â€
Last, the circumstances surrounding the execution of the PMA were not
coercive; the court noted that when Valerie signed the agreement “she was alone
in her kitchen. There was no evidence
that Russ exerted either threats or violence at the time she executed the PMA
or that she was induced to sign the PMA under circumstances that destroyed her
free agency and caused her to act against her will.†In sum, substantial evidence supports the
trial court’s conclusion that Russ rebutted the presumption of undue influence. (See Burkle,
supra, 139 Cal.App.4th at pp. 739-740.)
C. Financial
Disclosures
Valerie contends the PMA must be set
aside because Russ did not make adequate financial disclosures. We conclude that her contention lacks merit.
As noted above, in November 1999,
Valerie’s attorney, Susan Coates, wrote to Mat Gutierrez, Russ’s attorney,
asking to defer the PMA until Russ had finalized the division of assets in his
ongoing dissolution proceeding with Sheila Pitto. Russ agreed.
Subsequently Gutierrez provided Coates with a copy of Russ’s Marital
Settlement Agreement, along with his 2000 and 2001 personal income tax
returns. In October 2003, Gutierrez sent
Coates a revised draft of the PMA and an updated financial statement. In May 2005, Gutierrez sent Coates a further
updated financial statement along with another draft of the PMA. The financial statements showed a sizeable
appreciation in the value of Russ’s assets over time. In this regard, the 1998 Balance Sheet shows
the value of current assets, investments and personal property totaling around
$6.5 million; the March 2003 Financial Statement shows a net worth of almost
$28 million; and the April 2005 Financial Statement shows a net worth of over
$33 million.
Under California law, “spouses entering into agreements relating to
marital assets may not misrepresent or conceal facts materially affecting the
value of the marital assets. (Citation.)â€
(Burkle, supra, 139
Cal.App.4th at p. 740.) The record
here amply demonstrates that Russ provided complete financial disclosures
showing the current value of his assets and liabilities throughout the process
of formulating the PMA until its conclusion in June 2005. Valerie, however, does not claim that Russ
failed to disclose the existence of assets or that he misstated the value of any
assets disclosed: Rather, Valerie claims
that Russ’s financial statements failed to disclose the value of any community
property which may have existed.
Both the California Supreme Court
and California Courts of Appeal have considered and rejected the argument
Valerie tenders here. In
(Boeseke) the California Supreme
Court had occasion to address the scope of disclosures required. In that case, after husband died leaving a
substantial estate, wife sued to rescind a property settlement agreement adopted
by the parties in their earlier divorce proceeding. The trial court concluded that the husband
failed to disclose the facts relating to the value, nature and extent of the
community assets, and that this nondisclosure constituted concealment of a material
fact, breach of fiduciary duty, and fraud.
(Boeseke, supra, 10 Cal.3d at
p. 848.) The Supreme Court
reversed. The court observed that while
husband did not disclose all facts in his possession relating to the value,
nature and extent of the community property, the wife and her counsel
nevertheless were fully advised of the property descriptions, were aware some
of it was of substantial value, but did not request further facts relating to
the value, the nature or the extent of the marital assets. Instead, the wife chose to accept her
husband’s offer of settlement “even after being advised by counsel that she
should investigate.†(
trial court’s finding of fraud predicated on lack of disclosure, stating: “[W]hen a spouse, represented by independent
counsel, determines to forego a suggested investigation and to accept a
proposed settlement, that spouse may not later avoid the agreement unless there
has been a misrepresentation or concealment of material facts. Under such
circumstances, the spouse proposing the agreement is under no duty to compel
the other to investigate, and the accepting spouse’s decision, though ill
advised, is binding.†(
p. 850, fn. omitted.)
Similarly, the appellate court in
PMA based on incomplete disclosures because wife failed to conduct further
investigation. In Burkle, wife argued a PMA was void because husband failed to
mention two pending mergers involving his business entities in the disclosures
provided in connection with the PMA. The
court stated: “The applicable law is
clear. The pertinent rule is that a spouse who foregoes investigation and
accepts a proposed settlement ‘may not later avoid the agreement unless there
has been a misrepresentation or concealment of material facts.’
(Citation.)†(Burkle, supra, 139 Cal.App.4th at p. 741, citing
the marital estate as of June 6, 1997; Ms. Burkle’s representatives were
offered full access at Mr. Burkle’s office to all financial information
throughout the negotiations; Ms. Burkle knew about the first merger, which
was consummated before she signed the agreement, and she knew Mr. Burkle
was working on the second merger; Mr. Burkle testified that documentation
on the second merger was available for review by Ms. Burkle’s
representatives in Mr. Burkle’s office; and Ms. Burkle’s
representatives did not review the information.†(Ibid.) “Under these circumstances,†the court held,
“only an actual concealment or misrepresentation would allow Ms. Burkle to
avoid her agreement.†(
Boeseke
and Burkle provide the legal backdrop
for our resolution of this issue
his financial assets and liabilities.
Valerie was advised by counsel that there may be community property
inhering in Russ’s assets and that Valerie could ask for a forensic accounting
to determine the extent of any such community property. Max Gutierrez testified that Susan Coates was
entitled to investigate on Valerie’s behalf whether any community property
existed and that he had a duty to provide any additional financial information
requested by Coates, in the interests of full disclosure. However, Gutierrez did not receive a request
from Coates either for an estimate of community property or for any audit
procedures to explore the issue. In sum,
the record demonstrates Valerie was apprised that there may be community
property at the time she concluded the PMA but she decided not to pursue the
matter. Under these circumstances, her
claim that the PMA is void for failure to disclose must fail. (See Boeseke,
supra, 10 Cal.3d at p. 850; Burkle,
supra, 139 Cal.App.4th at p. 741.)
D. Judgment
on Reserved Issues
As well as appealing from the trial
court’s rulings on the validity and enforceability of the PMA, Valerie appeals
the trial court’s determinations on several of the issues reserved for the
second phase of trial proceedings. We
discuss these below.
Valerie contends the trial court
should have awarded $1,533,288, not $678,904, as the lump sum amount due to her
under paragraph 4 of the PMA in the event of dissolution or divorce. We find the court properly interpreted the
language of paragraph 4 and the record supports the trial court’s award of the
lump sum amount to Valerie.
As described ante, under paragraph 4 the sum for each year of marriage received
by Valerie upon termination of the marriage increases with the length of the
marriage. For purposes of determining
the length of the marriage, paragraph 4 provides that “the marriage will be
deemed to have ended on the day that either party files and serves a petition
for divorce, dissolution of the marriage or for the legal separation of the
parties in the State of California, or any comparable pleading in any
jurisdiction outside of the State of California and, after the filing and
service of such petition, [the] parties do not reconcile and resume living
together and the petition is not dismissed or the party who filed the petition
does not abandon prosecution of the action.â€
Valerie asserts this language reflects three conditions: (1) filing of a petition for divorce or
dissolution; (2) failure to reconcile; and, (3) failure to dismiss or
abandon prosecution of the petition.
Under Valerie’s interpretation of
paragraph 4 their marriage did not end until entry of judgment on
November 24, 2009, because Russ could have dismissed or abandoned his petition
any time prior to entry of judgment.
We reject, as the trial court did,
Valerie’s strained and unreasonable interpretation of the language of paragraph
4. (See Southern Cal. Edison Co. v. Superior Court (1995) 37 Cal.App.4th
839, 847-848 [“When a dispute arises over the meaning of contract language, the
first question to be decided is whether the language is ‘reasonably
susceptible’ to the interpretation urged by the party. If it is not, the case
is overâ€].) Patently, the end of the marriage
for purposes of paragraph 4 is the date of filing of a petition for divorce or
dissolution. In effect, Valerie
interprets the language of paragraph 4 to state “the marriage does not end
until a reconciliation or abandonment of the petition is rendered impossible by
entry of judgment.†This is plainly an
unreasonable interpretation. To the
contrary, the most reasonable interpretation of the PMA is that the length of
the marriage was determined by the date Russ filed the present dissolution
petition: If the parties had reconciled,
or if Russ had dismissed or abandoned his petition, then the date either party
filed a subsequent petition for dissolution would determine the length of the
marriage. Accordingly, the trial court
did not err by finding the marriage ended for purposes of paragraph 4 when Russ
filed for dissolution on June 19, 2006.
Valerie appeals the trial court’s
award to Russ of $354,542 in attorney fees and $35,396.36 in costs after the
first phase of trial proceedings on the enforceability of the PMA, pursuant to
Civil Code, section 1717 (section 1717).
court prematurely awarded attorney fees and erred in determining that Russ was
the prevailing party under section 1717.
Valerie also contends that in determining the fee award the trial court
failed to consider her relative ability to pay.
We disagree.
In pertinent part, the PMA
provides: “If legal action is required
to defend the validity of this Agreement, the prevailing party shall be
entitled to attorneys’ fees and costs from the other party.†Issues regarding the validity and
enforceability of the PMA were contested in the first phase of trial
proceedings. At the conclusion of the
first phase of trial proceedings, the trial court determined those issues in
favor of Russ, concluding in the SOD that the PMA was a valid transmutation
document; Valerie entered the PMA freely, knowingly and voluntarily; Valerie
was not induced to enter the PMA by fraud or concealment and Russ did not
materially breach the PMA. In short, the
first phase of trial proceedings addressed multiple issues related to the validity of the PMA and the trial court
resolved every one of those issues in favor of Russ. At the conclusion of phase one of the
proceeding, there were no remaining issues to be resolved with respect to
validity of the PMA and the validity of the agreement was the only grounds for
attorney fees and costs provided in the PMA.
Thus, the trial court was not required to delay consideration of the
propriety of attorney’s fees under the PMA until the conclusion of the entire
proceeding. Russ was the prevailing
party on the issue of the validity of the PMA.
(See Hsu v. Abbara (1995) 9
Cal.4th 863, 877 [determining the prevailing party involves “a relatively
uncomplicated evaluation of the parties’ comparative litigation successâ€].)
Valerie’s contention that the trial
court was required to consider her relative ability to pay in determining the
amount of the fee award, pursuant to sections 2030-2032 of the Family Code,
also lacks merit. The trial court
awarded attorney fees and costs to Russ as the prevailing party on a
contractual dispute, pursuant to section 1717, not under the Family Code. Thus, the trial court was not required to
consider Valerie’s relative ability to pay in determining the amount of the
award. (See In re Marriage of Sherman (1984) 162 Cal.App.3d 1132, 1140 [because
attorney fee award “emanated from the contractual relationship of the parties
and not from their relationship under the Family Law Act,†the trial court did
not err by precluding husband from introducing evidence regarding his ability
to pay the award]; see also Raye & Pierson, 2 California Civil
Practice, Family Law Litigation, (2003) § 10:6, [where marital agreements
specify that the prevailing party is entitled to recover reasonable attorney’s
fees and costs in any action for breach of the agreement, “fees and costs [are]
recoverable as ‘costs of suit’ under Civ. Code § 1717, and the prevailing
party may recover without any showing of need and ability to payâ€]; Hogoboom
& King, California Practice Guide:
Family Law (The Rutter Group 2011) ¶ 14:275 [Family Code fee
statutes inapplicable where “parties have agreed to a recovery of fees and
costs in an action arising under the contract, [because] the contract itself
provides an alternative basis for fees and costs award[ed]â€].)
Valerie contends that the trial
court’s order of permanent support should be reversed because the court
modified the support order while the matter was on appeal. Our review of the chronology leading to the
court’s entry of judgment in this matter disposes of Valerie’s contention that
the court modified support while that issue was on appeal. Following the second phase of trial
proceedings, the trial court filed its findings and conclusions on September 9,
2009, in an order labeled “Judgment Phase Two.â€
Valerie filed a notice of appeal (NOA) from “Judgment Phase Two,†which
became appeal No. A126802. Subsequently,
the trial court filed the final judgment on November 24, 2009. In issuing its final judgment, the court realized the
document labeled “Judgment Phase Two†was actually its statement of decision on
the issues tried in phase two of the proceedings. The final judgment incorporated, without
change, the spousal support provisions
as set forth in the statement of decision.
Valerie appealed from the final judgment, which became appeal No.
A127429.
Thereafter, Valerie filed a motion
in this court to consolidate appeals A126802 and A127429. Russ declined to stipulate to the
consolidation on the grounds A126802 was taken from a non-appealable order and
should be dismissed. We granted
Valerie’s motion and consolidated the appeals for purposes of briefing,
argument and decision, but we also directed counsel to address in their
briefing “whether the ‘judgment’ that is the subject of the appeal in A126802
is an appealable order.†(See order filed
March 1, 2010.) Valerie has simply ignored
our directive. In compliance with our
directive, Russ argues the “judgment†is not appealable because it is actually
a statement of decision, not the final judgment. We agree.
(See Alan v. American Honda Motor
Co., Inc. (2007) 40 Cal.4th 894, 901 [whereas “[r]eviewing courts have
discretion to treat statements of decision as appealable when they must, as
when a statement of decision is signed and filed and does, in fact, constitute
the court’s final decision on the merits[,] [citations] . . . a statement
of decision is not treated as appealable when a formal order or judgment does
follow, as in this caseâ€].) Accordingly,
appeal number A126802 is dismissed and all issues addressed herein fall under
appeal number A127429. Valerie’s
contention that the court “modified†the support order during a “pending
appeal†is not only meritless but it is also moot.
Nor are there any grounds for
reversal in the trial court’s determination of the amount and duration of
spousal support, as asserted by Valerie.
“Wide discretion is vested in the trial court in determining the amount
and duration of spousal support. [A
trial court’s] discretion must be exercised along legal lines, taking into
consideration the circumstances of the parties, their necessities and the
financial ability of the husband.
Discretion is abused whenever, in its exercise, the court exceeds the
bounds of reason, all circumstances before it being considered. [Citations.]
. . . [¶] Thus, an appellate court must act with cautious
orders. [Citation.] ‘An abuse of discretion will be perceived [only] if
. . . it can fairly be said that no judge would . . . make
the same order under the same circumstances.’ [Citation.]†(In re
Marriage of Wilson (1988) 201 Cal.App.3d 913, 916-917.)
Here the trial court exercised its
considerable discretion, considering each of the applicable statutory factors set forth in
Family Code, section 4320 (section 4320) relevant to the determination of the
amount of spousal support.
name="_ftnref17" title="">[17] The trial court set out its extensive
findings on these factors in its statement of decision. For example, regarding section 4320,
subdivision (e) (the obligations and assets, including the separate property, of
each party), the court found: “At trial,
Wife presented evidence that Husband has substantial equity in his residence
and in his Colorado home, as well as the ability to rent out the Colorado home
to create income. Husband also has
numerous other real estate holdings, some with equity, others with none and all
with compromised values at this time.
The existence of these separate properties, albeit with uncertain
values, is nonetheless an indication that were these properties liquidated, the
values and equity are sufficient to pay reasonable support to Wife for a
reasonable amount of time. Based on its
findings under section 4320, the trial court concluded that “[i]t is not
inappropriate for Wife to continue to receive [] support while she transitions towards
self supporting status†and ordered support of $15,000 per month from
August 1, 2009 to November 30, 2009; $10,000 per month from
December 1, 2009 to May 31, 2010; and $5,000 per month from
June 1, 2010 to August 31, 2010, with support to terminate at that
point. Having reviewed the trial court’s
findings on the statutory factors relating to spousal support, we conclude the
trial court did not abuse its discretion in setting the amount and duration of
spousal support.
Valerie contends the trial court
abused its discretion by awarding Russ $40,000 in attorney fees after the
second phase of trial proceedings, pursuant to Family Code, section 271.
her contention.
In his request for attorney fees
under section 271, Russ asserted that Valerie “made no effort to reasonably
compromise or reduce the cost of the litigation†and as a consequence he has
incurred approximately $1,000,000 in total attorney’s fees and costs, including
$600,000 in non-contract issues. Russ
asked the court to award him “the amount of the net PMA benefit†due to Valerie
under the court’s judgment, which amounted to $167,530.
In ruling on Russ’ fee request, the
trial court found that Valerie’s attorney “has
maintained an unrelenting campaign of aggressive and unreasonable litigation.â€
In this regard, the court stated Valerie’s “tactic†of litigating without
compromise began when her counsel responded to Russ’s newly appointed counsel’s
request for a continuance on the initial support motion by threatening to seek
an ex parte order advancing the date
of the hearing unless Russ met certain financial concessions. This continued with Valerie’s practice of
filing numerous motions, “including repeated motions to reconsider without any
statutory basis.†Given Valerie’s
litigation tactics, the court “ultimately appointed a discovery referee to
manage discovery and attend depositions.â€
The court stated discovery sanctions were imposed against Valerie and/or
her counsel by both itself and the discovery referee. The court also noted Valerie’s “unrestrained
filings of writs or appeals†totaling eight or more over the course of the
litigation through March 2009. The court
further stated it had repeatedly admonished Valerie she would receive no more
pendente lite attorney fees “until the ‘runaway train’ was stopped and reason
restored,†but Valerie and her counsel remained “undaunted†and have “latched
onto Husband with terrier-like ferocity,†racking up attorneys fees of
$1,000,000 in the process. Concluding
that “if this is not a case requiring an award of fees under [section 271] []
then no such case could ever exist,†the court next considered the amount of
the award.
Against this backdrop, the court
first considered section 271’s directive that a party must have the ability to
pay the fees levied. The court noted
that [d]espite receiving the equivalent of $25,000 in monthly support for three
years Wife has only $10,000 in her savings account. . . . She will
receive funds under the PMA per this court’s ruling and needs based fees under
Family Code § 2030. . . . Wife therefore has the ability to pay
fees awarded under [section 271]. This court
is not to impose a sanction that will result in an unreasonable financial
burden, (citation) but the sanction should have significance. This court believes that a sanction of
$40,000 . . . while only a small portion of the excessive fees
incurred by Husband due to Wife’s litigation tactics, is reasonable and appropriate
in light of Wife’s overall financial circumstances.â€
Two precepts guide us in vetting the
propriety of the court’ s fee award—the exercise of a trial court’s discretion
will not be disturbed unless it appears that there has been a miscarriage of
justice and the burden is on the party complaining to establish an abuse of
discretion. (Denham v. Superior Court
(1970) 2 Cal.3d 557, 566.)
Valerie asserts abuse of discretion on the grounds that the fees awarded
under section 271 were actually awarded to punish her for filing an action
against Russ in her capacity of Trustee for her daughter’s educational
trust. This is belied by the fact the
trial court did not even mention the Trust action in its section 271
order. Indeed, contrary to Valerie’s
assertion, the trial court’s stated reasons for imposing fees under section 271
“reflect a correct understanding of the relevant legal standards and
principles.†(In re Marriage of LaMusga (2004) 32 Cal.4th 1072, 1105 [“[A]
reviewing court must examine the trial court’s stated reasons for an exercise
of discretion to determine whether those reasons reflect a correct
understanding of the relevant legal standards and principles.â€].) In sum, Valerie has failed to demonstrate
that the trial court’s award of fees under section 271 was a
v. Superior Court, supra, 2 Cal.3d at p. 566 [“unless a clear case of
abuse is shown and unless there has been a miscarriage of justice a reviewing court
will not substitute its opinion and thereby divest the trial court of its
discretionary powerâ€].)
Disposition
The
judgment is affirmed. Attorney fees and
costs on appeal are awarded to respondent.
_________________________
Jenkins,
J.
We concur:
_________________________
McGuiness, P. J.
_________________________
Pollak, J.
name="_ftn1" title="">[1] As explained below
(see Discussion at (C)(3)), we dismiss appeal number A126802 and address all
issues under appeal number A127429.
only, and with no disrespect intended, we refer to the parties by their first
names, as does the post-marital agreement at issue herein.
