Recent Posts in High Conflict Divorces Category
| March 08, 2011 |
| Family Court SANCTIONS for UNCOOPERATIVE CONDUCT that FRUSTATES SETTLEMENT |
| Posted By Thurman Arnold |
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I've recently blogged the 2nd Appellate District's March 3, 2011 decision in Marriage of Fong as it pertains to
each party's obligation to comply with Family Code section 2105 and submit their Final Declarations of Disclosure prior to certain contested hearings, like a motion for attorney fees for noncompliance by the other party with the disclosure statutes.
Marriage of Fong is also instructive in its application of
Family Court section 271 governing sanctions awards for conduct that frustrates settlement and the efficient resolution of family law disputes. It reads:
"(a) Notwithstanding any other provision of this code, the court may base an award of attorney's fees and costs on the extent to which the conduct of each party or attorney furthers or frustrates the policy of the law to promote settlement of litigation and, where possible, to reduce the cost of litigation by encouraging cooperation between the parties and attorneys. An award of attorney's fees and costs pursuant to this section is in the nature of a sanction. In making an award pursuant to this section, the court shall take into consideration all evidence concerning the parties' incomes, assets, and liabilities. The court shall not impose a sanction pursuant to this section that imposes an unreasonable financial burden on the party against whom the sanction is imposed. In order to obtain an award under this section, the party requesting an award of attorney's fees and costs is not required to demonstrate any financial need for the award.
(b) An award of attorney's fees and costs as a sanction pursuant to this section shall be imposed only after notice to the party against whom the sanction is proposed to be imposed and opportunity for that party to be heard.
(c) An award of attorney's fees and costs as a sanction pursuant to this section is payable only from the property or income of the party against whom the sanction is imposed, except that the award may be against the sanctioned party's share of the community property. "
The Wife in Fong filed a request for 271 sanctions against the Husband and asked for $150,000 as attorney fees and accountant's costs that she alleged the other party had unnecessarily caused her side. Specifically she submitted evidence at the sanctions' hearing that showed:
- That Gary Fong had failed to fully and timely respond to discovery concerning bank records, mortgage loan applications, refinancing, and rental income
- That he failed to cooperate in obtaining bank records directly from Canadian banks where he'd held accounts
- That he failed to respond to her two settlement offers
- That at trial he produced bank records that he'd failed to produce in response to discovery requests seeking those same records
- That Gary refinanced community real property on several occasions in violation of court orders
- That he failed to provide an accounting of all rents and refinances and the disposition of those proceeds, when he'd been ordered by the court to do so, and
- That he attempted to sell real property located in Canada in violation of a court order.
The trial court was persuaded by Wife's evidence and argument and imposed $100,000 in sanctions upon the Husband. According to the Second District Appellate justices, it "reasonably could conclude based on this evidence that Gary's conduct
frustrated settlement and cooperation between the parties and counsel and justified an award of attorney's fees and costs...." Because 271 does not speak to a course of conduct as a predicate for sanctions, one can imagine that any of the above mis-steps could have supported the trial court's award. Taken in their totality however, once the trial court agreed with Wife's allegations it could clearly conclude that such conduct was the type that FC §271 is intended to punish. None of this is surprising (nor uncommon in high conflict divorces), but at least lawyers and parties making these types of requests have specific misconduct and the
Fong decision to buttress their sanctions' arguments.
But Fong supplies some additional guidance that was missing before. This involves the language of 271 that "[t]he court shall not impose a sanction pursuant to this section that imposes an unreasonable financial burden on the party against whom the sanction is imposed." In a way this section potentially allows a party guilty of misconduct to insulate themselves from sanction consequences where part of their misconduct involves either or both the nondisclosure of assets that could be used to fund the sanctions award, or the value of those assets. I've never understood this limitation because a bad actor can truly 'get away with it' if they apparently lack sufficient financial resources - people without assets, or minimal income or assets, evidently get a free pass where those with assets do not. Often a spouse is misrepresenting their income stream, and so their FL-150 Income and Expense Declaration is inaccurate. Hence, lying behavior may be rewarded. In my experience trial courts are already reluctant enough to issue punishing financial orders.
Marriage of Fong changes this result somewhat, but speaks obliquely to what asset base is sufficient to upholding a sanctions' order. The trial court here gave $100,000 of the $150,000 the Wife asked for (and undoubtedly would have been upheld if it had given her $150,000), but Gary contended that it failed to consider his ability to pay and so the award should be set aside. His Final Property Declaration was on file, as was his Income and Expense Declaration. While the appellate court references the former in upholding the trial court's exercise of discretion, it completely ignored whatever information was contained in the I & E. This is an important and new explication of the law on sanctions that extends the scope of 271 and what evidence is required to support these types of awards: If either the income stream
or the asset base support the conclusion of ability to pay, it will not work an "an unreasonable financial burden..." on the responding party. This was not clear before this ruling.
In terms of the sufficiency of the Husband's asset base to permit the sum of $100,000 to be awarded, all the reported decision tells us is this Gary owned:
- Nine rental properties
- A personal residence (a ranch)
- A yacht
- Savings accounts
- Gold coins
- And "other items" (possibly three calling birds and two turtle doves?)
Evidently the existence of these assets, the values of which are not set forth by the court, may create a presumption of an ability to pay that shifts the burden of proof onto the responding party to disprove that ability. Now, the decision doesn't exactly say that. What it does say is "Gary does not cite or discuss this evidence or argue that it is insufficient to justify the amount of the award" and that "Gary bore a greater burden of disclosure and fiduciary responsibility with respect to the community assets." The appellate language is a great victory for "out-spouses" - the disadvantaged party or domestic partner who doesn't control the community property marbles or the information relating to them. It is a realistic approach to remedying the difficulties and expense these litigants face in terms of producing evidence.
In guiding other trial courts this decision implies that a court can ignore income stream and does not need not know the actual value of the party's assets before sanctioning them under 271. After all, we have no idea whether the real estate contained equity. If the resisting party wants to disprove an ability to pay despite the existence of these types of items, once the requesting party has demonstrated misconduct the 271 respondent better present credible evidence of little or small value, or risk that value is assumed just by the existence of what appears to be an upper class lifestyle.
Marriage of Fong cites and follows upon
In re Marriage of Tharp (2010) 188 Cal.App.4th 1295.
Tharp is important for a number of reasons, not the least of which is that there the trial court
failure to sanction was overturned as being insufficient and a misapplication of the law. Both cases are sending a message. Is anybody listening?
Taken together, the twin sisters of Fong and
Tharp demonstrate that the noose is tightening around those parties who seek to obstruct either the fair exchange of information that is required by the fiduciary duties statutes, and those whom unreasonably fail to respond to settlement offers or to litigate cooperatively. Keep in mind that these folks must have spent a million dollars in legal fees with their back and forth.
As usual with these types of decisions, they tell family lawyers as much what not to do as what to do. It is a great decision, although without more information concerning Gary's net worth it provides only a generalized benchmark for what amount of sanctions is appropriate in these situations. This is the case's weakness, but also its strength.
Thurman W. Arnold, III, CFLS
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| September 25, 2010 |
| My ex-Husband's Mother Is FORECLOSING a TRUST DEED On COMMUNITY PROPERTY - What Can I do? |
| Posted By Thurman Arnold |
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Q. Our property has not yet been divided. My husband has tried every trick in the book to delay the proceedings and has lied to the Court, and his family has lied along with him. Now I just received in the mail a Notice of Default from his mother's attorney. Before we separated we bought a commerical property off of El Paseo, in Palm Desert, in the name of our family trust. "Ed" claims that the money we used to buy that building was from his mom as a loan to us. I never heard of this until a long time after we separated.
In 2007 Ed's mom recorded a trust deed that Ed signed alone. It is dated a week before he filed for divorce, but it was recorded with Riverside County more than two years later. All of this was outside of escrow. The note is for $400,000, all due in 2008. The trust deed was notarized by her sister (a notary in Beverly HIlls) and I don't believe for a minute that it was signed by Ed when it says it was signed.
I have also learned in Ed's interrogatory answers that his mother may have placed money into one of his accounts at about the same time as the property escrow closed. She has money, and is paying Ed's lawyer too. They were planning this all along.
My attorney said that under the law and under the family trust agreement that Ed had equal management rights to our property, and so she could obligate us both only with his signature. She seems distracted and I am worried. We have about two months left before Ed's mother steals the property from us - or at least from me. What can I do?
"Carol"
A. Hi Carol. Fortunately you do have options and remedies, and I will describe one tactic. The short answer is that Ed's mother needs to be joined as a party to the divorce proceedings, and a restraining order obtained from the family court to stay the foreclosure to protect the community estate until the validity of the trust deed has been determined. There is a procedure for bifurcating trials in family law cases to fast track pivotal issues in a kind of mini-trial. Whether the Court joins her or not, I recommend a bifurcation and a separate trial on the validity of the both the note and the obligation itself.
My purpose here is to give you an overview of what joinder is and how it might help you.
BTW, this is a type of conduct that defines high conflict divorce cases, making divorces unnessarily ugly, complex and expensive. When family members with money underwrite their adult child's divorce agenda (or even write the script), the adversary divorce experience can feel quite overwhelming. It is doubly sad for the children of couples in divorce when grandparents want to help crush the other parent since kids see the hatred for what it is, and this insight doesn't strengthen the grandparent/grandchild bond, model positive behaviors, and tends to alienate children from everyone involved - and from themselves.
The foreclosure process requires a 90 Day Notice of Default, and must be followed with a 21 day Notice of Trustee's Sale, before title can be transferred to a creditor.
Your attorney's first task is to stop the foreclosure. That should not be difficult under these facts. I would be surprised if a well reasoned letter to the other attorneys didn't back off on the foreclosure under these facts. Ed's mom bears some significant risks if she continues on this course. She may end up funding your attorney in defending against the Notice of Default (NOD) and in reimbursing most or all of your attorney fees on the joinder, and the Court may declare her to be owed nothing or to be an unsecured creditor of her son only.
Next, she needs to file a joinder petition within the dissolution action - probably whether or not the mother ceases the foreclosure - because the validty of the trust deed needs to be determined and you are far better off doing this within your dissolution proceeding. Family Code section 2021 authorizes courts to order the joinder of a person or entity.
California Rules of Court, Rule 5.150 and
Rule 5.154 amplify the description of who can be joined and what needs to be shown. oinders are common when dealing with pension plans, but of course that is not your issue today.
You want the joinder because once Mom becomes a joined party to the proceedings the family court has jurisdiction over not only her, but with what to do with the property and to declare the trust deed invalid. If she is not joined, then the Court can only determine rights as between you and your husband - it has no jurisdiction over Mom directly and so no authority to render any binding decisions upon her. Moreover, if the trust deed is set aside this means Ed's mom becomes an unsecured general creditor of the estate - or possibly only a creditor of Ed's. This may have the effect ensuring that the Palm Desert building is owned by the community free and clear, and that so dramatically increase the value of your share since it may be that the mother's money really did fund the purchase (since she deposited money into Ed's account at about the time escrow closed).
Also, while the law is not settled on this point, a party joined to dissolution case may be liable for attorney's fees incurred by the other parties relative to this issues for which they are joined.
In order to be entitled to an order joining a party it must be shown to the court that the person involved claims an interest in the community property or community debts. This includes creditors like Ed's mother. By the way, she herself has the right to request that she be joined but has little incentive to do so.
There is much more to say. If your attorney doesn't understand this strategy or the procedure, find yourself a competent family law specialist. The stakes are simply too high.
T.W. Arnold III
September 25, 2010 |
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