Marriage of Schmitt

Filed 1/17/07  Marriage of Schmitt CA4/1

NOT TO BE PUBLISHED IN OFFICIAL REPORTS

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 COURT OF APPEAL, FOURTH APPELLATE DISTRICT

DIVISION ONE

STATE OF CALIFORNIA

            APPEALS from an order of the Superior Court of San Diego County, Randa Trapp, Judge.  Affirmed.

            In a 1975 marital dissolution judgment, the court ordered the government pension benefits of Arthur F. Schmitt, Jr., be divided with his former wife, Mildred McCarty, and, by a 1978 modification of that judgment, directed that McCarty receive approximately 41 percent of the gross pension when Schmitt retired.  Schmitt was also ordered to provide an annual verification to McCarty of the total pension amounts received by Schmitt during the prior year.  Schmitt subsequently directed the government to pay directly to McCarty $626 per month as her court-ordered share of the pension, and in 1984 those payments increased to $798 per month.

            In May 2004 Schmitt discontinued the payments to McCarty.  McCarty responded by filing an Order to Show Cause to Divide Pension and for Arrears (OSC), asserting that she was owed approximately $73,000 (plus interest of approximately $39,000) because the amounts paid to her between 1984 and 2004 did not include her 41 percent share of the annual cost of living increases (COLA's) Schmitt had been receiving.  The court rejected Schmitt's argument that McCarty's claims were barred by a three-year statute of limitations under Family Code section 1101, subdivision (d)(1),^[1] and also rejected his contention that the 1978 judgment had expired under section 291.  However, the court concluded McCarty was guilty of laches, and therefore ruled McCarty could collect arrearages for only the 10-year period immediately preceding the hearing date of the OSC, and ruled that Schmitt owed McCarty a total of $73,440.50 as unpaid pension benefits, including interest.

            Schmitt appeals the findings that McCarty's claims were not time barred or, in the alternative, were not based on an expired judgment.  McCarty appeals, asserting the court erred by applying laches to reduce her claim.^[2]

I

BACKGROUND

            In 1975, the parties entered into an interlocutory judgment of dissolution.  At the time, Schmitt was on active duty with the Navy.  The judgment included provisions for spousal and child support, and further provided that " upon his retirement .  .  . and receipt of monies under the Armed Forces Retirement System .  .  .  , [Schmitt] shall pay to [McCarty] as and for her community property share of his [naval pension] a fractional portion of [Schmitt's] retirement pension," and defined the methodology for computing her fractional share.

            Schmitt retired in 1977.  In 1978, the court modified the 1975 judgment by replacing the above-quoted provision with a new paragraph that provided:

" [Schmitt] shall pay to [McCarty] each and every month as received 40.9 [percent] of his gross pension received  .  .  .  , and [Schmitt] shall provide to [McCarty] at least annually a copy of verification from the United States government of the amount of total pension received by [Schmitt] during the prior year."

            In June 1980 Schmitt directed the Navy Financial Center to pay McCarty directly.  McCarty began receiving $626 per month in June 1980 and, in 1984, the amount increased to $798 per month, which McCarty continued to receive through early 2004.  There were no further increases in the monthly payments received by McCarty.  However, Schmitt continued to receive COLA's averaging approximately 3 percent per year.  In May 2004 Schmitt directed the Navy to stop sending payments to McCarty.

            In August 2004 McCarty filed this OSC seeking to divide the pension and for arrearages.  In addition to the unpaid amounts after May 2004, McCarty sought arrearages for her 40.9 percent share of the COLA's received by Schmitt between 1984 and 2004, plus interest at 10 percent per annum.  Schmitt opposed the OSC, asserting he had been unaware that the Navy had not been paying McCarty her proportionate share of the COLA's because the Navy had been paying McCarty directly, and she had not contacted him to raise concerns over the amounts she had been receiving.  Schmitt argued the action should be barred by the three-year statute of limitations for breach of fiduciary duty, and by laches.^[3]  McCarty's reply asserted laches should not apply because she was unaware of the COLA's and therefore had not unreasonably delayed in bringing the OSC, and there was no undue prejudice to Schmitt because he had wrongfully been retaining her share of the pension.

            The court rejected Schmitt's arguments that McCarty was barred (either by limitations or by expiration of the judgment) from all recovery, but did conclude McCarty was guilty of laches, and limited McCarty's recovery to the 10-year period preceding the hearing on the OSC.  The judgment awarded McCarty approximately $51,000 in unpaid principal and approximately $23,000 in interest.  Both parties appeal.

I

SCHMITT'S APPEAL

            Schmitt's appeal contends (1) McCarty's right to recover for arrearages more than three years prior to the OSC hearing is barred by the limitations provisions of section 1101, and (2) McCarty's entire action is barred because the 1978 judgment expired 10 years after it was entered when McCarty did not renew the judgment.

            A. Section 1101

            Schmitt argues the claim is time barred under section 1101, which provides:

" (a) A spouse has a claim against the other spouse for any breach of the fiduciary duty that results in impairment to the claimant spouse's present undivided one-half interest in the community estate, including, but not limited to, a single transaction or a pattern or series of transactions, which transaction or transactions have caused or will cause a detrimental impact to the claimant spouse's undivided one-half interest in the community estate. [¶]  .  .  .  [¶]

" (d)(1) Except as provided in paragraph (2), any action under subdivision (a) shall be commenced within three years of the date a petitioning spouse had actual knowledge that the transaction or event for which the remedy is being sought occurred."

            Schmitt contends that the gravamen of McCarty's claim is for breach of fiduciary duty under section 1101, subdivision (a), and therefore the three-year statute of limitations under section 1101, subdivision (d)(1) bars her action for arrearages accruing more than three years prior to her filing the OSC.

            We are not persuaded by Schmitt's argument because we are convinced section 1101 has no application to McCarty's claim.  McCarty did not assert Schmitt's acts impaired her undivided interest in community assets, but instead asserted Schmitt had breached his obligations to pay her separate property share of the pension.  Although Schmitt broadly asserts section 1101 applies, we conclude the context of section 1101 shows it applies only to pre-dissolution misconduct.  Section 1101 is part of Division 4, Part 4 of the Family Code, entitled " Management and Control of Marital Property," and must be read in conjunction with the other provisions of that part.  Section 1100 regulates the management and control over community property and places certain restrictions on the ability of each spouse to dispose of community property, and section 1101 provides certain rights and remedies to a spouse whose community property interest has been impaired by the acts of the other spouse.

            Importantly, section 1100 specifies that " Each spouse shall act with respect to the other spouse in the management and control of the community assets and liabilities in accordance with the general rules governing fiduciary relationships which control the actions of persons having relationships of personal confidence as specified in Section 721, until such time as the assets and liabilities have been divided by the parties or by a court."   (Id. at subd. (e), italics added.)  Thus, the remedies provided by section 1101 for breach of fiduciary duty, including the internal statute of limitations for a section 1101 claim, are dependent on the fiduciary obligations outlined in section 1100.  However, after the parties have dissolved their marriage and divided the community assets and liabilities, any then-existing fiduciary obligations as to the community assets cease.^[4]

            B. The Judgment Expiration

            Schmitt argues McCarty's failure to renew the 1978 judgment completely bars this action because section 291 makes a Family Code judgment " for possession .  .  . of property" subject to the same periods of enforceability and renewal procedures provided by section 683.020, and a judgment expires after 10 years unless timely renewed.  (Code Civ. Proc., §§  683.020, 683.110.)  Schmitt asserts that a Family Code judgment that divides a community property pension benefit and orders a spouse periodically to remit the share to the other spouse is a judgment for possession of property that expires if not timely renewed.

            Schmitt relies on In re Marriage of Wilcox (2004) 124 Cal.App.4th 492 and In re Marriage of Farner (1989) 216 Cal.App.3d 1370 to assert a judgment dividing a pension benefit is a judgment for possession of property within the meaning of section 291 and section 683.020.  However, Wilcox does not support Schmitt's claim.  In Wilcox, the husband argued that money is a form of property under the Family Code, and therefore a judgment directing him to pay money to his ex-wife (purportedly as an equalization payment) was a judgment for possession of property within the purview of section 291 and section 683.020.  (In re Marriage of Wilcox, at p. 501.)  The Wilcox court, rejecting this argument, concluded that a judgment directing the husband to pay money to his ex-wife was a classic money judgment and it fell outside the plain meaning of the limited exemption for Family Code judgments delineated by section 291, and remained enforceable even without renewal.  (Wilcox, at p. 501.)  Here, as in Wilcox, the judgment did not direct Schmitt to deliver to McCarty a specified item of personal property, but instead ordered him to make periodic money payments to McCarty.  Wilcox undercuts rather than supports Schmitt's claim that the instant judgment is one for possession of property within the meaning of section 291.

            Farner is equally inapposite.  In Farner, the court considered the limited question of whether a wife, who had obtained an earlier judgment granting to her a percentage interest in the husband's pension benefits, could enforce that judgment by a writ of execution issued by the clerk or instead was required to obtain a court order establishing the amounts owed and permitting levy by writ of execution to recover any outstanding amounts.  The Farner court, addressing the husband's claim that the judgment could never be enforced by writ of execution because the judgment ordered a division of property rather than entry of a money judgment, concluded that enforcement by writ of execution was available because the substance of the judgment was a money judgment to the extent the husband had received pension payments but had not conveyed the wife's share of those benefits to her.  (In re Marriage of Farner, supra, 216 Cal.App.3d at p.  1376.)  Farner ultimately held the proper procedure, similar to the procedure employed here, was to petition the court for an order that established the amount owed for past unpaid installments, and such amount would then be amenable to levy by a writ of execution if the court (in its discretion) permitted execution.  (Id. at pp.  1376-1378.)  Although Farner contains dicta characterizing a spouse's interest in the other spouse's retirement pay as a property interest, it contains no holding or analysis of whether an order dividing future retirement payments is a judgment for possession of property within the meaning of section 291.

            We are convinced section 291, which carves out a limited role for the sunset provisions of Code of Civil Procedure section 683.020 to operate in the Family Law arena, does not apply to an order dividing pension benefits requiring periodic remittances to the other spouse.  Under the Code of Civil Procedure provisions reincorporated into the Family Code by section 291, a judgment for " possession of property" is enforced by issuance of a writ of possession that, among other things, must describe the property to be delivered (Code Civ. Proc., §  714.010, subd. (b)(1)), and the levying officer must " search for the property specified in the writ" and " take custody of the property."   (Id. at §  714.020, subd. (a).)  Although this method of enforcement is viable when a judgment awards possession of items of corporeal property, a judgment awarding a percentage interest in a monetary payment is not amenable to the description, search and custody requirements contemplated by these provisions.  To paraphrase this court's previous observations in In re Marriage of Wilcox, supra, 124 Cal.App.4th at page 501:

" [Husband's] argument [that a judgment awarding money is a judgment for possession of property] may be understandable if we were discussing which party would get possession of a coin collection sitting in a safe deposit box, because in this context one could perhaps assert that the money should be treated as property.  However, this is not the situation here.  The June 1993 order simply ordered [Husband] to pay [Wife a percentage of his pension income]; it did not indicate this money should come from any particular place, or even comment as to whether [Husband] had this amount of money in his possession (which he evidently did not)."   (Fn. omitted.)

            We conclude a Family Code judgment that divides a community property pension benefit and orders a spouse periodically to remit a share to the other spouse is not a judgment for possession of property within the intent and meaning of section 291.  Accordingly, the trial court correctly ruled the judgment did not expire under section 683.020.

II

McCARTY'S APPEAL

            McCarty contends the trial court erroneously applied laches to limit her recovery to arrearages for the 10-year period immediately preceding the hearing in the present proceeding.  She argues (1) there is no substantial evidence to support either of the two findings (unreasonableness of the delay and undue prejudice to the defendant) essential to application of the doctrine of laches, (2) laches should not apply to the enforcement of pension benefits, and (3) Schmitt's unclean hands precludes him from invoking laches.

            A. The Finding of Laches

            The defense of laches requires more than the mere passage of time, but can be shown if the delay is unreasonable and there is prejudice resulting from the delay that would render it inequitable to grant relief to the party guilty of the unreasonable delay.  (In re Marriage of Plescia (1997) 59 Cal.App.4th 252, 256.)  " Generally, the existence of laches is a question of fact to be determined by the trial court in light of all the applicable circumstances" (ibid.), and we apply a deferential standard of review to the trial court's laches ruling and will sustain the ruling on appeal if there is substantial evidence to support it.  (Johnson v. City of Loma Linda (2000) 24 Cal.4th 61, 67.)

            McCarty sought to recover arrearages stretching back 20 years.  The trial court found this delay in seeking arrearages was unreasonable because she was aware the amounts she received had been increased by a COLA in 1984 but had not been increased by any COLAs thereafter, and was aware Schmitt had not been complying with his obligation to provide her with yearly statements verifying the amount of the pension.  However, she did not ask for any accountings, took no action to enforce her right to an accounting (although she was aware of her rights and of the availability of court remedies in a post-dissolution milieu), and for 20 years did not investigate whether Schmitt's pension had been increasing.  This evidence supports the finding that her delay in bringing the action was unreasonable.

            There is also evidence to support the conclusion Schmitt suffered prejudice from the delay.  First, the trial court noted Schmitt presumably reported and paid taxes on the additional income received between 1984 and 2005, and it would undoubtedly be difficult (as well as requiring substantial expense) for Schmitt to seek to file amended tax returns to recoup the taxes he paid on those additional amounts.  Second, the trial court recognized the inequity of permitting McCarty to delay bringing her claim because it allowed her to accrue the advantages of the statutory 10 percent interest rate on the arrearages at Schmitt's expense.  (See In re Marriage of Cordero (2002) 95 Cal.App.4th 653, 658 [noting that, because of disparity during the 1990's between the 2 percent interest rate available in the market and the 10 percent interest rate under the statute, " [f]or more than a decade now, it has been more profitable to leave a judgment uncollected and let the interest mount up for a while than immediately collect it" ].)

            Because there is substantial evidence to support the findings of both unreasonable delay and undue prejudice, we cannot conclude the trial court abused its discretion in holding that laches was properly applicable here.

            B. Laches as an Available Defense

            McCarty asserts the court erroneously employed laches in this case because laches applies only as a bar to equitable claims while the claim for arrearages is a legal claim.  However, McCarty cites no authority that laches cannot be applied to claims characterized as legal claims, and many cases have concluded that a court may apply laches to bar recovery on a claim ordinarily characterized as a legal claim.  (See In re Marriage of Garcia (2003) 111 Cal.App.4th 140, 145 [laches applicable to child support claim even though child support is a legal, rather than equitable, right]; Simon v. Simon (1985) 165 Cal.App.3d 1044, 1049 [laches applicable to claim seeking to divide community property asset].)

            C. Trial Court Discretion to Apply Laches

            McCarty finally asserts laches cannot be applied because the trial court found Schmitt had unclean hands, and unclean hands can preclude a party from relying on laches.  (See In re Marriage of Cutler (2000) 79 Cal.App.4th 460, 478-479 [dicta].)  However, the decision to apply laches is within the discretion of the trial court and will not be reversed absent a clear showing of an abuse of discretion.  (In re Marriage of Plescia, supra, 59 Cal.App.4th at p. 256.)  In In re Marriage of Fogarty & Rasbeary (2000) 78 Cal.App.4th 1353, the court held that, although unclean hands can preclude a laches defense, laches could be invoked by a debtor-spouse to preclude enforcement of stale claims for child support even though the failure to make the payments " by .  .  . definition .  .  . would automatically render the hands of the debtor-spouse unclean" (id. at p.  1366), and that a trial court's decision to apply laches in such a context would not be reversed absent an abuse of discretion.  Here, Schmitt averred that he was unaware McCarty was not receiving her full share of the pension, and believed (from her absence of complaint over the years) that he had been meeting his obligations to her.  The court balanced the equities before it, including the relative blameworthiness of the parties, and concluded laches would be applicable to arrearages more than 10 years old but not as to arrearages less than 10 years old.  On this record, McCarty has not clearly shown the trial court's decision was an abuse of discretion.

DISPOSITION

            The order is affirmed.  The parties shall bear their own costs on appeal.

McDONALD, J.

WE CONCUR:

                          McCONNELL, P. J.

                                   O'ROURKE, J.

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^[1]           All further statutory references are to the Family Code unless otherwise specified.

^[2]           McCarty's appellant's reply brief has properly interposed arguments responsive to Schmitt's respondent's brief but has also intermingled both new material and arguments apparently rearguing matters pertaining to Schmitt's appeal.  Accordingly, Schmitt has moved to strike portions of McCarty's appellant's reply brief.  This court has disregarded those latter aspects of McCarty's appellant's reply brief and therefore Schmitt's motion to strike is moot.

^[3]           Schmitt also asserted, during oral argument, the 1978 judgment had expired under Code of Civil Procedure section 683.020 (section 683.020) because McCarty had not renewed it.

^[4]           Even assuming section 1101 applied to conduct occurring after the parties dissolved their marriage and divided the assets, the three-year statute would still have no application because the statute is triggered and the three years commence to run only when the aggrieved spouse " had actual knowledge that the transaction or event for which the remedy is being sought occurred."   (Id. at subd. (d)(1), italics added.)  Schmitt cites no evidence that McCarty had actual knowledge he had been withholding her share of the COLA's prior to 2004, and thus McCarty's action is timely even if section 1101 applied to this action.