Opinion
NOT TO BE PUBLISHED
APPEAL from a judgment of the Superior Court of Los Angeles County No. BD465689, Richard Montes, Judge. (Retired Judge of the L.A. S.Ct. assigned by the Chief Justice pursuant to art. VI, § 6 of the Cal. Const.) Reversed and remanded for retrial with directions.
Law Offices of Jack K. Conway and Jack K. Conway for Appellant.
Law Office of Darren S. Young and Darren S. Young for Respondent.
JOHNSON, J.
Elham Kostandy appeals from the judgment on reserved issues after the dissolution of her marriage to Gamal Kostandy. She argues that the trial court miscalculated charges and credits, erred in its ruling that Gamal did not violate his fiduciary duty, and should have granted her requests for attorney fees and costs. We reverse and remand for retrial with directions.
For ease of reference, we use the given names of Elham (wife) and Gamal (husband). No disrespect is intended. (See Rubenstein v. Rubenstein (2000) 81 Cal.App.4th 1131, 1136, fn. 1.)
BACKGROUND
Gamal and Elham married in 1982 and separated on May 29, 2006. Gamal filed a petition to dissolve the marriage on May 23, 2007. After a stipulation by the parties on March 4, 2010, Gamal and Elham testified at a two-day trial on March 18 and 19, 2010. The remaining issues were alleged wasting of assets by Gamal in an online stock trading account, reimbursement by Elham for the use of the family residence and credits for mortgage payments, and Elham’s request for attorney fees and costs.
After the parties’ separation, Elham remained in the family home with the parties’ adult children and the youngest son, who was seventeen at the time of separation. A three-year domestic violence restraining order excluded Gamal from the family home from June 2006 (just after the May 29, 2006 date of separation) until the end of June 2009. After separation and up until the time of trial, Gamal paid the second trust deed on the home. Elham paid the first trust deed.
Elham’s lawyer represented that the restraining order expired on June 30, 2009.
At trial, Gamal testified that he opened an E-Trade account after discussing online investing with Elham, using approximately $30,000 given to him by Elham, which he placed in his checking account and then transferred to his online account. (Gamal later testified that the $30,000 was borrowed on a credit card.) The parties stipulated that Gamal opened and closed the account in 2000. Opening the account was a mutual decision with Elham. Gamal played the stock market for about six months, and after the market “went all the way up” it “suddenly dropped sharply. And then I lost the money, like everyone lost it... [in] a few hours, a few days.” Gamal no longer owned the stock. Elham did not participate in the online trading, but Gamal talked to her about the online stock trade account, “sometimes every day.” Gamal would discuss the good news with Elham, at times in response to her inquiries, and would look at the account daily. At his deposition Gamal stated, “‘I told her after the situation happened. She insisted, so I told her. You know, she could have some negatives.... [¶] Unfortunately when she knew, she caused problems.’” At trial, Gamal explained: “When I open the account, I used to talk with her as a good news. It’s a fact. But after that when I found everything is going bad, you know, I had it inside myself.” The $30,000 investment went up to as high as $70,000, and when Gamal closed the account it had nine dollars in it.
Gamal’s 2002 individual tax return reported the loss as $74,239.
Elham testified that some of the money to open the E-Trade account came from her, and later stated that another $30,000 came from Gamal’s credit card. Elham also testified that she did not know Gamal was opening the E-Trade account, and “[a]t the time, he informed me that we lost our money that we had, ” explaining, “‘It just went down so fast. I was busy.’” Gamal repaid the $30,000 on the credit card. Elham was not involved in the E-Trade account.
A June 2003 check made out to Gamal for $5000 from Scottrade was also in evidence. Gamal testified that he opened an account with Scottrade and withdrew the money the same day.
On April 5, 2010, the trial court entered a judgment dissolving the marriage. On May 3, 2010, the trial court entered its judgment on reserved issues. The judgment awarded the family home to Elham as her sole and separate property, ordering her to pay $182,000 to Gamal as his share of the community interest, and made other divisions of property not in issue on appeal. The court concluded that Gamal did not breach his fiduciary duty to Elham, as there was no evidence that Elham sought, and Gamal refused to provide, information about his online stock trading. The court awarded Gamal $23,800 in Watts/Epstein charges andcredits. Finally, the court denied Elham’s request for attorney fees.
In re Marriage of Watts (1985) 171 Cal.App.3d 366; In re Marriage of Epstein (1979) 24 Cal.3d 76.
Elham filed a timely appeal.
DISCUSSION
I. Watts/Epstein charges and credits
Elham argues that the trial court erred in its calculation of charges and credits under In re Marriage of Watts, supra, 171 Cal.App.3d 366 (Watts) and In re Marriage of Epstein, supra, 24 Cal.3d 76 (Epstein). We agree.
The judgment stated that Gamal’s decision not to stay in the residence after June 2009 (when the restraining order expired) was voluntary, and that Gamal and Elham, represented by counsel, had agreed that Gamal would continue to pay the second trust deed, and would also claim reimbursement for the reasonable rental value of the residence; the agreement was memorialized in a letter. The court declined to deny Watts charges because the children lived in the residence after June 2009 (“The parties’ children are adult children and chose to remain living in the family residence with the Respondent.”). The court did not impose any Watts charges or Epstein credits, however, for the 2006–2009 period that Gamal was excluded from the residence by the restraining order, stating that credits and charges were appropriate “from June 2009 to March 2010.” The court concluded that Gamal “is entitled to $23,800 in Watts/Epstein credits.”
A spouse who, after separation, uses separate property to pay a community debt or to maintain a community asset is generally entitled to a credit from the community (Epstein credits), unless the payment was in reality a discharge of the paying spouse’s duty to pay support to the other spouse. (Epstein, supra, 24 Cal.3d at pp. 84–85; Fam. Code, § 2626.) Conversely, a spouse with exclusive use of a community asset after separation may be required to compensate the community for the reasonable value of that use (Watts charge). (Watts, supra, 171 Cal.App.3d at p. 374.) If the community asset is being financed, “the spouse [with exclusive use] may satisfy the duty to compensate the community for use of the asset by making the monthly finance payments from his or her separate property. [Citations.]” (In re Marriage of Garcia (1990) 224 Cal.App.3d 885, 890–891.) “[B]oth ‘Epstein credits’ and ‘Watts charges’ are, respectively, to be paid from or paid to the community. Inasmuch as both spouses have an equal interest in community assets [citation], and in light of a trial court’s obligation under the Family Law Act to divide community assets equally between the parties upon a dissolution of the marriage [citation], it follows that the net effect of allocating ‘Epstein credits’ and ‘Watts charges’ in a division of community assets should be (1) the equal sharing of ‘Epstein credits’ by both spouses and (2) the equal bearing of ‘Watts charges’ by both spouses.” (In re Marriage of Jeffries (1991) 228 Cal.App.3d 548, 553 (Jeffries).) The trial court has discretion, based on equitable considerations, whether to allow Epstein credits or Watts charges. (Epstein, supra, 24 Cal.3d at pp. 83–85; Watts, supra, 171 Cal.App.3d at p. 374; see In re Marriage of Hebbring (1989) 207 Cal.App.3d 1260, 1272.)
The judgment also specified “the current payment [by Gamal] of spousal support has been by earnings assignment and that method of payment shall continue until further order of the Court” at the rate of $500 a month. Unless otherwise specified, all subsequent statutory references are to the Family Code.
Elham contends, and Gamal concedes, that the trial court used the wrong number of months to calculate the charges and credits. The trial court stated that it was awarding charges and credits from June 2009 to March 2010, excluding from the calculation the time that Gamal was barred from the residence by the restraining order, but then stated that as of March 1, 2010 Gamal was entitled to 14 months of Watts charges. Critically, the period of time from the end of June 2009 (when the restraining order expired) to March 2010 is eight months, not 14 months. Thus, all the trial court’s time-based calculations are incorrect.
As to Elham’s remaining contentions, we are at a loss to understand how the trial court arrived at its award to Gamal of Watts charges and Epstein credits. For example, the trial court allocated “Watts charges” of $29,400 to Elham, stating that it was adding that amount to the overall value of the community estate awarded to Elham as her separate property, but then stating that charging Elham with $29,400 in “Watts charges” left Gamal better off than he would have been had those charges not been assessed against Elham. The $29,400, however, does not represent Watts charges to be charged against Elham, but Epstein credits to be credited to Elham, since that is the monthly amount of $2,100 (times 14 months) that Elham paid on the first trust deed. Epstein credits are to be paid from the community, and are to be credited to the party making the payments. (Jeffries, supra, 228 Cal.App.3d at p. 553.)
We do, however, reject Elham’s argument that she did not have exclusive use of the residence because the adult children resided with her. (Although the youngest child was apparently 17 at the time of separation on May 29, 2006, that child was certainly an adult three years later during the period for which the court assessed Watts charges, beginning at the end of June 2009.) Elham points to testimony by Gamal that at the time of separation (May 29, 2006), he wanted the children to remain in the house until the divorce was final and told them to “keep staying in the house.” That alone, however, does not establish that Elham did not have exclusive use of the residence beginning at the end of June 2009, when the court began calculating the Watts charges. The trial court was within its discretion to conclude that the adult children’s presence did not deny Elham exclusive possession during the relevant period. (See Watts, supra, 171 Cal.App.3d at p. 374 [trial court can take into account all circumstances relevant to exclusive possession].)
We remand for retrial on the Watts charges and Epstein credits.
II. Fiduciary duty
Elham filed a noticed motion to supplement the record (which Gamal did not oppose) with what she characterizes as recently discovered evidence of Gamal’s wasting of community assets (unrelated to the E-Trade and Scottrade accounts), evidence which was not furnished during discovery in the trial court. The material attached to the motion includes documents addressed to Gamal (at a post office box) from different investment firms and showing investments from 1999 and 2000, as well as credit card records, which Elham found “secretly hidden” in a shed on the family property. “[A]fter a judgment has become final, newly discovered evidence is not a ground for reopening that judgment unless the concealment of that evidence prevented a fair adversary hearing, kept the claimant out of court entirely or utterly deprived him of a claim or defense, or precipitated a grave miscarriage of justice such as the conviction of an innocent person.” (Los Angeles Airways, Inc. v. Hughes Tool Co. (1979) 95 Cal.App.3d 1, 6.) An argument that a claim was not as strong as it would have been had concealed documents been available is an allegation of intrinsic fraud and not grounds for relief. (Id. at pp. 7–8.)
Nevertheless, because we are remanding for retrial on other grounds, we have already determined to reopen the judgment. Thus, we hereby grant Elham’s motion to supplement the record. The issue of breach of fiduciary duty, including wasting of assets, is properly a subject for retrial.
As regards the online trading accounts, Elham contends that the trial court erred in concluding that pursuant to In re Marriage of Duffy (2001) 91 Cal.App.4th 923 (Duffy), Gamal did not breach his fiduciary duty to her in connection with his online trading accounts because there was no evidence that Elham sought, and Gamal failed to provide, information about the stock trade accounts. She argues that the court should have ordered Gamal to reimburse her for her share of wasted community assets.
In the judgment, the trial court awarded Elham nothing as her share of wasted assets with regard to the stock trade accounts, concluding that Gamal did not breach his fiduciary duty of care to her under sections 721 and 1100. There was no “prudent investor” rule with regard to the management of community assets, and there was no evidence that Elham sought, and Gamal failed to provide, information about the online trading, or that Gamal misrepresented the status of the account to her or used the account to his advantage and to Elham’s disadvantage.
The law to be applied upon retrial is clear. Section 721, subdivision (b), provides that spouses are subject to general rules governing the fiduciary relationships which control persons in confidential relations with each other. Section 1100, subdivision (e), provides that in the management and control of community personal property, each spouse shall act in accordance with the general rules governing fiduciary relationships as specified in section 721, with “the obligation to make full disclosure to the other spouse of all material facts and information” regarding community assets and debts, and to “provide equal access to all information” pertaining to the assets and debts “upon request.” When the legislature enacted sections 721 and 1100 in 1992, “it intended that the duty to make full disclosure and the duty to provide equal access both turned on a request by the other spouse.” (In re Marriage of Walker (2006) 138 Cal.App.4th 1408, 1420–1421 (Walker).)
As amended in 2002 (effective January 1, 2003), section 721, subdivision (b) states: “[t]his confidential relationship is a fiduciary relationship subject to the same rights and duties of nonmarital business partners, as provided in sections 16403, 16404, and 16503 of the Corporations Code.” The amendment was intended in part to abrogate the 2001 ruling in Duffy, supra, 91 Cal.App.4th 923, to the extent that the ruling conflicted with the clarifying amendment. (Walker, supra, 138 Cal.App.4th 1408, 1425.) Duffy held that a husband did not breach his fiduciary duty where there was no evidence that his wife sought, and the husband failed or refused to provide, information about a community investment. (Duffy, supra, 91 Cal.App.4th at pp. 933–934; Walker, supra, 138 Cal.App.4th 1408, 1424.) Section 1100, subdivision (e), which remained unchanged, necessarily adopted the amended section 721. (Walker, supra, 138 Cal.App.4th at p. 1425.) The Corporations Code sections relied upon in the original section 721, which provided that partners shall provide each other information affecting the partnership “on demand, ” had been repealed. The new Corporations Code sections enumerated in section 721 as amended “impose a duty on partners to furnish each other without demand ‘any information concerning the partnership’s business and affairs reasonably required for the proper exercise of the partner’s rights and duties....’ (Corp. Code, § 16403, subd. (c)(1).)” (Walker, supra, 138 Cal.App.4th at p. 1427.)
Duffy also held “a spouse is not bound by the prudent investor rule and does not owe to the other spouse the duty of care one business partner owes to another.” (Duffy, supra, 91 Cal.App.4th at p. 940.)
Walker also concluded that the 2002 amendment of section 721—imposing a duty on spouses to furnish each other information about community assets without demand—was retroactive, because it did more than clarify existing law by “imposing, for the first time, a specific requirement that a spouse convey certain information about the... community’s affairs, even if the other spouse has not requested this information....” (Walker, supra, 138 Cal.App.4th at pp. 1427–1428.) Walker declined to apply the statute retroactively to the facts of that case, which involved the wife’s management of a community IRA account during the marriage and prior to the January 1, 2003 effective date of the 2002 amendments (the parties separated in November 2002). (Id. at pp. 1412, 1428.) The wife did not hide the IRA statements or checking account, there was no evidence that the husband asked for them, or that he did inquire and the wife lied, or that the wife used the funds for other than community purposes, and the husband was not naïve in financial matters. (Id. at p. 1428.) “To penalize Wife now for breach of a statutory spousal duty that did not exist during the parties’ marriage would disrupt the repose that should follow the actions she undertook in accordance with the established customs and practices of their marriage and which were intended to serve their marital community, not her personally.” (Ibid.) In Duffy, the court of appeal applied the pre-amendment standard and concluded that insufficient evidence supported the trial court’s finding that the husband breached his fiduciary duty to the wife where “there was no evidence, substantial or insubstantial, that [wife] ever sought information about the investment of [community] assets, which information [husband] failed or refused to provide.” (Duffy, supra, 91 Cal.App.4th at pp. 933–934.)
As in Walker, the behavior that Elham characterizes as a breach of fiduciary duty—Gamal’s stock trading on E-Trade for approximately six months in 2000—took place before the amendments to section 721 went into effect on January 1, 2003. At least as regards the E-Trade account, the duty under the revised statute to convey information even in the absence of a spousal request therefore does not apply to Gamal, as retroactive application would penalize Gamal for breach of a spousal duty that did not exist at the time of the E-Trade account. (Walker, supra, 138 Cal.App.4th at p. 1428.) Instead, the applicable standard is the standard in place before the amendments, which was that the Family Code “intended that the duty to make full disclosure and the duty to provide equal access both turned on a request by the other spouse.” (Walker, supra, 138 Cal.App.4th at pp. 1420–1421.)
Accordingly, we order a retrial on the issue of breach of fiduciary duty and wasting of assets, including as regards the evidence that was the subject of Elham’s motion to supplement the record.
III. Attorney fees
Elham argues that the trial court should have awarded her attorney fees under section 2030, because Gamal employed three different attorneys and thus delayed resolution of the case, forced Elham to obtain a court order for spousal support, failed at some point to pay the second deed mortgage, acted in bad faith in claiming he was not required to do so, and understated his earnings (by failing to include overtime compensation).
Elham supported her request for fees with a declaration from her attorney, in which he stated that he was admitted to practice in 1970, and almost all of his practice was family law. Gamal had employed three different attorneys, which had slowed the case down. In spite of the length of the marriage and his superior earnings (Gamal earned $100,000 a year, Elham $50,000), Elham had to obtain a court order for spousal support. At one point, Gamal stopped paying the second trust deed, which resulted in late notices and forced Elham to borrow money to make the payments, pending a court order. Gamal had misrepresented his earnings by failing to include overtime compensation. Fees were authorized under sections 2030 and 271. An attached billing statement itemized $36,563 in attorney fees incurred by Elham.
Elham challenges the court’s denial of fees under sections 2030 and 2032. The court concluded: “Leaving aside the ability of [Gamal] to contribute to the attorney[ ] fees incurred by the Respondent, the Court cannot make any findings regarding the factors enumerated above based upon the state of the evidence in these proceedings.”
Section 2030 authorizes a need-based award of attorney fees and costs to “ensure that each party has access to legal representation to preserve each party’s rights” in a marital dissolution action. (§ 2030, subd. (a)(1).) The court is to consider the respective incomes and needs of the parties and other circumstances affecting their respective abilities to pay. (§ 2030, subd. (a)(2).) “The court may make an award of attorney[ ] fees and costs under Section 2030... where the making of the award, and the amount of the award, are just and reasonable under the relative circumstances of the respective parties.” (§ 2032, subd. (a).) “Financial resources are only one factor for the court to consider in determining how to apportion the overall cost of the litigation equitably between the parties under their relative circumstances.” (§ 2032, subd. (b).) The trial court has broad discretion to award fees pursuant to section 2030, and the exercise of this discretion will not be disturbed on appeal without “‘a clear showing of abuse.... The trial court’s order will be overturned only if, considering all the evidence viewed most favorably in support of its order, no judge could reasonably make the order made.’” (In re Marriage of Keech (1999) 75 Cal.App.4th 860, 866.)
“In ruling on a need-based request for fees, a trial court is required to actually exercise its discretion. [Citation.] The court has a duty to make a just and reasonable award of attorney[ ] fees and costs, if warranted under the circumstances of the case before it. [Citation.]” (In re Marriage of Cheriton (2001) 92 Cal.App.4th 269, 318 (Cheriton).) The significant factors are the requesting party’s need for representation and the other party’s ability to pay, as well as “‘“‘the nature of the litigation, its difficulty, the amount involved, the skill required and the skill employed in handling the litigation, the attention given, the success of the attorney’s efforts, his learning, his age, and his experience in the particular type of work demanded [citation]; the intricacies and importance of the litigation, the labor and the necessity for skilled legal training and ability in trying the cause, and the time consumed.’”’” (In re Marriage of Huntington (1992) 10 Cal.App.4th 1513, 1523; In re Marriage of Keech, supra, 75 Cal.App.4th at p. 866; Cheriton, supra, 92 Cal.App.4th at p. 318.) Although the trial court’s discretion is broad, “the record must reflect that the trial court actually exercised that discretion, and considered the statutory factors in exercising that discretion.” (In re Marriage of Braud (1996) 45 Cal.App.4th 797, 827.)
The record does not show an exercise of discretion by the trial court. The court stated it was “[l]eaving aside” Gamal’s ability to contribute to Elham’s fees and then declined to make any findings on the other relevant factors, “based upon the state of the evidence.” “[I]ts decision clearly was based on its determination that [the requesting party] had failed to carry her burden of proof.” (Cheriton, supra, 92 Cal.App.4th at p. 318.) In Cheriton, the court held that it was an abuse of discretion to fail to consider a fee request on its merits, based on the state of the record, where the requesting party had attempted to proffer adequate evidence and the court had declined to reopen the trial to take the evidence. (Id. at pp. 317–318.) While the declaration by Elham’s attorney did not address all the factors enumerated above, there was not a complete failure of proof.
Elham also challenges the denial of fees under section 1100. The court denied the request for attorney fees under section 1100, because Gamal did not violate his fiduciary duty to Elham or act in bad faith with regard to the E-Trade accounts. As the issue of Gamal’s breach of fiduciary duty will now be retried, any request for an award of attorney fees on that basis may be raised after retrial.
After retrial, the court shall exercise its discretion, as set forth above, whether to award fees upon a request by either party.
DISPOSITION
The judgment is reversed. The cause is remanded to the trial court for retrial on the Watts charges and Epstein credits and on Gamal’s alleged breach of fiduciary duty and wasting of assets, including as regards the evidence that was the subject of Elham’s motion to supplement the record. After retrial, the court shall exercise its discretion, based on the trial record and as described in this opinion, as regards any request for attorney fees by either party. The parties are to bear their own costs on appeal.
We concur: MALLANO, P. J.CHANEY, J.