Opinion
NOT TO BE PUBLISHED
APPEAL from the Superior Court of Riverside County No. IND083490 Richard E. Denner, Judge. (Retired judge of the Los Angeles Super. Ct., assigned by the Chief Justice pursuant to art. VI, § 6, of the Cal. Const.)
Sheila A. Williams and Laura J. Fuller for Appellant, Lisa L. Dixon.
Schlecht, Shevlin & Shoenberger and Jon A. Shoenberger for Appellant, John F. Dixon.
OPINION
Codrington, J.
I
We deny John’s motion to dismiss filed January 7, 2011.
Appellant Lisa L. Dixon (Lisa) appeals from a judgment on reserved issues in a marital dissolution proceeding with respondent and cross-appellant John F. Dixon (John). The principal dispute between the parties involves the value of their respective interests in the profits of High Tech Irrigation, Inc. (High Tech), a company they formed in 1985 with Robert Bardin (Bardin).
On appeal, Lisa argues John breached his fiduciary duty to her; the court abused its discretion in denying Lisa’s motion for joinder; and the court erred in an apportionment between the parties. In his cross-appeal, John also challenges the court’s apportionment and raises an additional issue regarding the imputation of investment income to Lisa in setting spousal support.
We conduct a deferential review: “A judgment or order of a lower court is presumed to be correct on appeal, and all intendments and presumptions are indulged in favor of its correctness. [Citations.]” (In re Marriage of Arceneaux (1990) 51 Cal.3d 1130, 1133.) We conclude that substantial evidence supports the trial court’s rulings and the judgment. We find no abuse of discretion.
II
FACTUAL AND PROCEDURAL BACKGROUND
John and Lisa were joint owners of High Tech with Bardin from 1985 to 2005. In 2005, John separated from Lisa and eventually married the company’s accountant, Debra Clark (Clark). The trial focused primarily on the division between John and Lisa of profits generated by High Tech after their 2005 separation.
A. Factual Background
John and Lisa were married in 1975 and have two adult children. Lisa’s father, Bryce Hadley, had founded an irrigation company, Indio Pipe & Supply, Inc. (Indio) in 1962. After they were married, Lisa and John both worked for Indio and Hadley. In 1985, they formed High Tech with Bardin, who contributed the initial capital investment of $150,000 and helped establish a line of credit. Bardin owned 50 percent of the company stock and the Dixons owned 50 percent.
John has managed High Tech from its inception. High Tech is a wholesale supply company for irrigation and turf products. It also sells, maintains, renovates, and repairs centralized, computer-driven irrigation systems. High Tech has two locations, one in Indio and one in Palm Desert. It employs about 34 people. Its primary customers are golf courses and adjacent residential areas. Golf courses are High Tech’s most profitable business but, starting in 2008, the economic recession severely affected its business.
In the beginning, Lisa handled High Tech’s accounting department. In 1985, Bardin and John both received an annual salary of $50,000 and Lisa received $25,000. In 1988, Bardin and John’s salary increased to $60,000 and Lisa’s salary increased to $40,000. In 1988, profits of $100,000 were also split equally between John and Bardin. In 1989, John earned $72,000, Bardin earned $60,000, and Lisa earned $40,000. John and Bardin again split $100,000 in profits.
In February 1989, High Tech hired Agnes Gabriel as a bookkeeper to replace Lisa. Later in 1989, High Tech also hired the accounting firm of Dennis Godecke and Debra Clark. Clark performed accounting services for High Tech from 1989 until November 2005, when Clark married John after his divorce from Lisa and Clark’s accounting firm resigned from High Tech.
In the fiscal year 1989-1990, Lisa’s salary was combined with John’s salary to avoid paying double social security taxes. John’s total salary was $140,000 and Bardin received $50,000. The bonus for 1989-1990 was paid one-third to Bardin and two-thirds to John and Lisa through John. Because of the tax consequences, Lisa did not directly receive a salary or bonus after 1989.
John, Lisa, and Bardin continued to be the officers, directors, and shareholders of High Tech. Beginning in 1990, they were each paid director’s fees of $10,000 annually.
In 1992, Lisa stopped working for the company full time. Lisa claims she tried to begin working full time again in 1997 but John would allow her to work for only two hours per day. John also directed her not to speak to any of the employees. John contends Lisa spent most of her time between 2001 and 2005 living at their house in Sedona while John managed the company.
Between 1998 and 2008, John received a base salary of $190,000 and Bardin received a base salary of $75,000. According to Lisa, the bonus profits were first divided according to the following allocation: the first $600,000 was split with one-third going to Bardin and two-thirds going to John or John and Lisa; the remaining profits were split with 20 percent going to Bardin and 80 percent going to John or John and Lisa. Most recently, the bonus split was simply 20 percent and 80 percent between Bardin and John.
Sales for High Tech were about $21 million in 2004, $23 million in 2005, $28 million in 2006, $28 million in 2007, $21 million in 2008, and $18 million in 2009. In 2009, no bonus was paid from profits of $800,000 because High Tech needed more than half a million dollars in capital improvements.
According to Lisa, John tried to exclude her from the company’s operations. John claims he allowed Lisa access to the company’s financial information but not the company’s customer lists, which he wanted to protect. John did not refuse to share any other business information with Lisa.
Lisa further contends that, after John became involved with Clark, they manipulated the bonus structure to deprive Lisa of her share of the profits. According to John, he made no changes in the operation of the company after 2005 because he wanted to avoid conflict with Lisa.
John deposited his bonus checks for 2006, 2007, and 2008 in segregated accounts totaling $2,602,853. He used the money to pay spousal support and attorney’s fees and costs.
B. Family Law Proceedings
John filed a dissolution petition in December 2004. A judgment terminating marital status was entered on September 8, 2005.
The trial court repeatedly denied Lisa’s motions for joinder of Bardin and High Tech as parties in the dissolution proceedings.
The parties stipulated to appoint a temporary judge, retired Judge Richard E. Denner, to preside over a nine-day trial in July and August 2009. Judge Denner prepared a first amended statement of decision in October 2009. Judgment was entered on November 10, 2009.
Judge Denner died on March 16, 2010.
As part of the 2009 judgment, the court ordered John to pay Lisa $16,000 per month in spousal support. The court also found John had not breached any fiduciary duty to Lisa by refusing to disclose the customer lists for High Tech to Lisa. In addition to its other division of assets, the court made the following apportionment: “The total proceeds of the business paid to [John] both as salary and bonus for the years 2006 through the first 7 months of 2009 was $5,177,000. The court finds that reasonable compensation for his efforts as CEO of the family business was $1,485,000.” After performing several calculations, the court concluded that Lisa’s share of “the community profits of the family business in the bonus accounts is $379,408.90 which is her separate property” to be paid to her from the segregated accounts.
III
BREACH OF FIDUCIARY DUTY
The standard of review for breach of fiduciary duty between spouses is sufficiency of the evidence. (In re Marriage of Burkle (2006) 139 Cal.App.4th 712, 737, citing In re Marriage of Mathews (2005) 133 Cal.App.4th 624, 632.)
Lisa argues John breached his fiduciary duty by allowing Clark to perform accounting services for High Tech and determining the profit share between Lisa, John, and Bardin, thus reducing the value of High Tech and “robbing” Lisa of her share of the profits. Furthermore, “John maintained control of the community property both during the marriage and during the separation clearly acting in his best interest giving himself a salary of $190,000.00 annually and bonuses exceeding [$5,000,000] during the time of separation and denying Lisa all access to funds and profits from the company. [¶] The breach of fiduciary duty lies in the fact that Lisa is a shareholder, officer, director and John paid himself $5,000,400.00 in bonus income in those four years and paid Lisa $40,000.00 in directors fees.”
None of these claims are supported by the record which showed that the decisions about profit sharing were made between Lisa, John, and Bardin. Lisa was certainly not deprived of her interest in the community property during the marriage. Lisa’s post-separation interest in High Tech was preserved by the court in its allocation. Clark was not even involved with High Tech as its accountant after November 2005.
Lisa also makes the additional untenable claim that John decided to combine their salaries and bonuses as early as 1989, knowing that, when they separated in 2005 and John married Clark, Lisa would lose her interest in the company they had founded with her father’s help. There is no support for this contention in the record.
Finally, Lisa does not argue the court erred in finding John could refuse to share customer lists with Lisa. Lisa simply asserts that it was characteristic of John to deny her access to the company, to exclude her from the premises, and to deprive her of her profit share. As previously stated above, the record is bereft of evidence supporting these contentions.
IV
THE APPORTIONMENT CALCULATION
Lisa objects to the court’s calculation of her interest in High Tech’s income for 2006, 2007, 2008, and the first seven months of 2009. The court made the following calculations:
Business Income
$5,177,000.00
John’s Reasonable Compensation
($1,485,000.00)
Community Property Paid to John
$3,692,000.00
Less Taxes at 35 percent
$2,399,800.00
Less Owner’s 50 percent (three/eighths)
$1,499,875.00
Half of Owner’s Interest
$ 749, 937.50
Support Paid to Lisa
$1,158,000.00
Less Dissomaster Amount
($ 587, 956.00)
Community Property Paid to Lisa
$ 570, 044.00
Less Taxes at 35 percent
$ 370, 528.60
Community Property Due Lisa
$ 379, 408.90
Five-eighths of $2,399,800 is $1,499,875.
The court explained its reasoning in its amended statement of decision: “The total proceeds of the business paid to [John] both as salary and bonus for the years 2006 through the first 7 months of 2009 was $5,177,000. The court finds that the reasonable compensation for [John’s] efforts as CEO of the family business was $1,485,000. Since the Court[’s] pendente lite spousal support orders were based on the total compensation under the control of petitioner some calculation is need[ed]. The Court assumed a standard support order as calculated by [D]issomaster, and taxes paid by both parties at an effective rate of 35%. The [D]issomaster calculated support due [Lisa] based on [John’s] reasonable compensation of $35,535 monthly. The support [Lisa] would receive would be her separate property from the reasonable compensation of [John]. Although [Lisa] asserted that she was entitled to half of the funds received above [John’s] reasonable compensation, as a half owner of one half of the business she is entitled only to half of the community share. The willingness of Mr. Bardin to give [John] some of his share of the income of the business does not indicate a willingness to give that sum to [Lisa]. [Lisa] has questioned whether the owner’s 50% share of the profits should be half of the community paid to [John] instead of the 5/8 calculated by the court. The court finds that the bonus monies were 80% of the total business profits of which 50% were due to each owner. That is half to the Dixon community and half to Mr. Bardin. The community was thus entitled to 5/8 of the profits paid to [John] and the court calculated it accordingly.”
As further explained in respondent’s brief, Judge Denner determined that Bardin, a 50 percent owner of High Tech, intended to give a portion of his profits to John for his efforts managing the company, as supported by his testimony. Therefore, John and Lisa were entitled to five-eighths, or $1,499,875, of $2,399,800. Lisa’s share was one-half of $1,499,875 or $749,937.50, minus $370,528.60, making the community property finally due to Lisa $379,408.90.
The actual distribution of company profits from January 2006 through July 2009, as set forth in John’s exhibit No. 20, was a total of $5,244,534: $2,426,950 (47.1 percent) to John, $1,422,750 (27.6 percent) to Bardin, and $1,394,834 (25.3 percent) to Lisa. As such, Lisa received the 25 percent share of the company profits to which she was entitled as one-half owner of 50 percent of the company. Furthermore, after John paid Lisa the additional $379,408.90, as ordered by Judge Denner, John’s share of the profits was reduced to $2,047,541.10 (39.72 percent) and Lisa’s share was increased to $1,684,242.90 (32.68 percent).
As John argues, the various alternative calculations proposed by Lisa would have entitled her to a substantially greater percentage of the profits, as much as 46.5 percent, hardly a fair or reasonable amount for a 25 percent owner of the company. As one example, Lisa argues the trial court should have calculated the apportionment based on her exhibit No. 244, awarding her about $450,000 more. The bolded items reflect changes from Judge Denner’s allocation:
Business Income
$5,177,000.00
John’s Reasonable Compensation
($1,485,000.00)
Community Property Paid to John
$3,692,000.00
Less Taxes at 35 percent
$2,399,800.00
50 percent owed to Lisa
$1,199,900.00
Support Paid to Lisa
$1,158,000.00
Less Dissomaster Amount
($ 587, 956.00)
Community Property Paid to Lisa
$ 570, 044.00
Less Taxes at 35 percent
$ 370, 528.60
Community Property Due Lisa
$ 829, 371.40
Notably, Lisa’s proposed allocation did not recognize Bardin’s interest in the company’s profits. Even recognizing Bardin’s interest, Lisa argues the Dissomaster calculation should have been higher, resulting in the amount of community property due to her being $645,568.30, roughly an additional $266,000.
Contrary to Lisa’s argument, the law does not mandate a court to adhere to one of four inflexible methods of equitable apportionment:
“Over the years our courts have evolved two quite distinct, alternative approaches to allocating earnings between separate and community income in such cases. One method of apportionment, first applied in Pereira v. Pereira (1909) 156 Cal. 1, 7 and commonly referred to as the Pereira approach, ‘is to allocate a fair return on the [husband’s separate property] investment [as separate income] and to allocate any excess to the community property as arising from the husband’s efforts.’ (Estate of Neilson (1962) 57 Cal.2d 733, 740.) [Fn. omitted.] The alternative apportionment approach, which traces its derivation to Van Camp v. Van Camp (1921) 53 Cal.App. 17, 27-28, is ‘to determine the reasonable value of the husband’s services..., allocate that amount as community property, and treat the balance as separate property attributable to the normal earnings of the [separate estate].’ (Tassi v. Tassi (1958) 160 Cal.App.2d 680, 690.) [Fn. omitted.]
“‘In making such apportionment between separate and community property our courts have developed no precise criterion or fixed standard, but have endeavored to adopt that yardstick which is most appropriate and equitable in a particular situation... depending on whether the character of the capital investment in the separate property or the personal activity, ability, and capacity of the spouse is the chief contributing factor in the realization of income and profits [citations]... [Par.] In applying this principle of apportionment the court is not bound either to adopt a predetermined percentage as a fair return on business capital which is separate property [the Pereira approach] nor need it limit the community interest only to [a] salary fixed as the reward for a spouse’s service [the Van Camp method] but may select [whichever] formula will achieve substantial justice between the parties. [Citations.]’ (Logan v. Forster (1952) 114 Cal.App.2d 587, 599-600; see Millington v. Millington (1968) 259 Cal.App.2d 896, 910; Haldeman v. Haldeman (1962) 202 Cal.App.2d 498, 505; Tassi v. Tassi [, supra, 160 Cal.App.2d at p.] 691.)” (Beam v. Bank of America (1971) 6 Cal.3d 12, 18.)
The courts have accepted any formula that is appropriate and equitable under the circumstances and achieves substantial justice between the parties, on the facts of the case. (In re Marriage of Dekker (1993) 17 Cal.App.4th 842, 854-855; In re Marriage of Zaentz (1990) 218 Cal.App.3d 154, 166-167.)
Lisa certainly has not demonstrated that Judge Denner abused his discretion in his allocation of the High Tech profits between John and Lisa. (In re Marriage of Dekker, supra, 17 Cal.App.4th at p. 849.) Substantial evidence in the record supports the court’s findings and rulings. (In re Marriage of Nichols (1994) 27 Cal.App.4th 661, 670.) Because we do not find that Judge Denner abused his discretion in making the allocation, we do not need to consider John’s cross-appeal on this issue based on In re Marriage of Behrens (1982) 137 Cal.App.3d 562.
V
MOTION FOR JOINDER
The trial court’s denial of a motion for joinder is reviewed for an abuse of discretion. (Schnabel v. Superior Court (1994) 30 Cal.App.4th 758, 763.) Joinder in family law cases is governed by Family Code sections 2021 and California Rules of Court, rule 5.150 et seq.
In May 2006, Lisa filed a motion to join Bardin as a party in the family law action. Lisa took the motion off calendar without prejudice. Lisa filed a second motion to join Bardin, which the court denied in November 2006. In May 2007, Lisa filed a civil complaint against John, Bardin, and High Tech, alleging breach of fiduciary duty and related causes of action. The superior court stayed the civil action pending a final determination in the family law action. Consequently, in October 2008, Lisa filed a third motion, seeking to join Bardin and High Tech. The family court denied the motion. Lisa’s writ petition seeking to join Bardin and High Tech was denied by the Court of Appeal in April 2009.
Lisa argues the trial court abused its discretion by refusing to join Bardin and High Tech. In support, Lisa relies on Schnabel, the leading case involving joinder of a close corporation in family law proceedings. Third party joinder is permissive. The court has discretion to order joinder if it would be appropriate to determine the particular issue involved and the third party is either indispensable to a determination of that issue or necessary to the enforcement of a judgment rendered on the issue. Whether it would be appropriate to determine the particular issue in the proceeding is to be decided in light of the issue’s effect on the proceeding, including whether the joinder would unduly delay the proceeding, confuse other issues or otherwise interfere with effective disposition of the action. (Cal. Rules of Court, 5.158(b).) (Schnabel v. Superior Court, supra, 30 Cal.App.4th at pp. 762-763.) Joinder is only appropriate in the “rarest of circumstances.” (Id. at p. 760.)
The factors enumerated in Schnabel are not present in the record before us. In Schnabel, the third-party corporation became “a partisan in the war” between the spouses and engaged in “blatant and egregious corporate favoritism.” (Schnabel v. Superior Court, supra, 30 Cal.App.4th at pp. 760, 763.) In order to assist the husband, the corporation froze the husband’s wages, refused to distribute accumulated earnings, and paid all of the husband’s attorney’s fees and costs, while using the same legal firm as the husband. The corporation also denied the wife access to corporate records. (Id. at pp. 763-764.)
In contrast to Schnabel, Lisa cannot make out a case for partisan warfare against her by Bardin and High Tech. Bardin and High Tech did not favor John in the divorce proceedings. Between 2006 and 2008, High Tech continued to operate as it did before the dissolution. High Tech paid wages and bonuses to John and Bardin and did not change compensation. John’s earnings were used by the court to award spousal support to Lisa. The absence of a distribution in 2009 (long after the joinder motions) was justified by the need for working capital. High Tech did not pay John’s attorney’s fees and High Tech was not represented by John’s law firm. Lisa was not denied access to any corporate records except the customer lists in which High Tech had a legitimate proprietary interest.
Lisa’s joinder motions did not establish that Bardin or High Tech were necessary parties for making or enforcing any family law order. The family court did not abuse its discretion by refusing to join Bardin or High Tech.
VI
JOHN’S CROSS-APPEAL
John argues the trial court erred in setting spousal support for Lisa of $16,000 monthly without considering investment income. Again, our review is based on abuse of discretion. (In re Marriage of Ackerman (2006) 146 Cal.App.4th 191, 211.)
The total amount awarded to Lisa in the division of property was $2,608,262.90, including investment assets in the amount of $1,707,465.40. John contends Lisa could earn 7.1 percent annually, or $54,566, from investment income and the court erred by not considering that amount in setting spousal support at $16,000 monthly. The court also determined that $16,000 monthly was “less than the marital standard of living.”
The court calculated that John earned about $52,000 monthly based on current economic conditions which had deteriorated in 2008 and 2009. Somewhat similarly, the court rejected John’s analysis of what Lisa “could earn if she had a million and one half dollars to invest. The figures are base[d] on historical returns and not actual current ones for the asset classes. However, she will need to use whatever money she makes from investment to live [on] now. As such the court believes that she will have investment income that it is far less than predicted.”
On appeal, John argues the court disregarded his expert’s testimony that was based on “analytical software that was widely used in the industry to predict future returns on various asset classes.” John urges that the court should have made an imputation of a 3 percent return, based on “common knowledge and common sense.” (In re Marriage of Schlafly (2007) 149 Cal.App.4th 747, 756; see also In re Marriage of Ackerman, supra, 146 Cal.App.4th at p. 211 [not an abuse of discretion to impute a 4.3 or 4.5 percent interest return based on the government bond rate at the time].)
The court did not ignore the issue of investment income. Instead, although Judge Denner did not accept John’s expert’s testimony, he also made a spousal support award that was less than the marital standard of living. It is a reasonable inference that he intended for Lisa to make up the difference by selling or investing her assets. Therefore, the court did not abuse its discretion on this issue.
VII
DISPOSITION
John did not breach his fiduciary duty to Lisa. The court did not abuse its discretion in denying Lisa’s motion for joinder, in making an apportionment between the parties, or in setting the amount of spousal support.
We affirm the judgment and order John as the prevailing party to recover his costs on appeal.
We concur: Ramirez, P.J., McKinster, J.