Opinion
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
APPEAL from orders of the Superior Court of San Diego County, Harry L. Powazek, Commissioner, Super. Ct. No. DN124357
McDONALD, J.
Claudia Warnack Sanders (Claudia) appeals an order denying her motion to set aside the judgment entered in the proceeding to dissolve her marriage to J. Randolph Sanders (Randolph) and the subsequent order denying her motion to vacate that order or, alternatively, for a new trial. On appeal, Claudia contends that because Randolph breached his fiduciary duty to disclose to her all material facts regarding the valuation of their community property interest in a corporation before they entered into a marital settlement agreement, the trial court erred by denying her motion to set aside the judgment of dissolution entered based on that agreement. She further contends the trial court erred in denying her subsequent motion to vacate that order or, alternatively, for a new trial. Finally, she contends the trial court abused its discretion by imposing sanctions against her for filing those motions.
FACTUAL AND PROCEDURAL BACKGROUND
Randolph and Claudia were married on August 26, 1972, and separated on June 27, 2002. On June 26, 2002, Claudia filed a petition for dissolution of their marriage. They had no children. Randolph had been employed by TPR Group, Inc., (TPR) since 1987. Randolph and Claudia owned a 23.1 percent community property interest in the stock of TPR. At the time of their separation, Claudia was not employed.
The other two primary stockholders of TPR are Bill Hansen (with a 50 percent interest) and Rich Love (with a 23.1 percent interest).
During a mediation session (apparently in 2003), they agreed to have Karen Kaseno, a certified public accountant, prepare a report on the valuation of their community property interest in TPR and its related entities. In a report apparently prepared in early May 2003, Kaseno concluded the community's 23.1 percent interest in TPR was worth $1,052,000 as of June 30, 2002, (about the time of the parties' separation). Kaseno noted the statement of assets and liabilities she prepared for TPR "presents the estimated economic value of each of the assets and liabilities included on the business balance sheet at June 30, 2002. It was obtained from the internal financial data provided by [Randolph]. It is not intended to be used for accounting purposes. Instead, for valuation purposes, adjustments have been made to reflect the estimated fair market value of the assets of [TPR]." Of particular importance in this case, Kaseno noted:
Randolph and Claudia also held community property interests in the stock of Old TPR, Inc., and Eagle Manufacturing & Technology, Inc., which were related to or affiliated with TPR.
The joint appendix filed by the parties appears to contain only excerpts from Kaseno's report. Her report also valued Randolph and Claudia's community interests in Old TPR, Inc., at $10,000 and in Eagle Manufacturing & Technology, Inc., at $4,000. Accordingly, Kaseno calculated the total value of their total community property interests in TPR and its related entities to be $1,066,000.
"A separate marital value appraisal was performed on the investment in Interactive, Inc. and the balance was adjusted to reflect the fair market value of the percentage of outstanding stock owned by [TPR]. Interactive, Inc. has a negative value. It is assumed that TPR is only at risk to the extent of its investment in Interactive and does not have any additional financial exposure for Interactive's negative net tangible asset value. Accordingly, the adjustment to [TPR]'s balance was limited to the amount invested in Interactive. [TPR] owns an 80% interest in Interactive, Inc. [Tab 3]"
Accordingly, Kaseno assumed TPR's investment in Interactive, Inc., was worth $0. That adjustment (apparently from $35,393 down to $0) presumably was based on information given her by Randolph. Kaseno also attributed a $0 value to TPR's intangible assets (e.g., customer list and organizational costs), noting: "[TPR's asset] schedules also included balances for customer lists and organization costs, which are intangible assets. Since we are estimating the fair market value of the net tangible assets, we did not add those balances to the balance sheet. It was assumed that the net book value of the fixed assets approximated their fair market value at the date of valuation."
In a May 6, 2003, e-mail to Randolph and Claudia apparently sent after Kaseno had completed her report, Kaseno wrote in part:
"[Y]ou had asked us to do a 'preliminary, cheapest way possible' valuation analysis. You asked that we not do work in areas that may not make a big financial difference. Therefore, in accordance with your request[,] we have not investigated every item possible. I think all of us are on the same page in defining the scope of my analysis. I did the most complete analysis possible with the lowest amount of fees possible. I was careful not to expend fees in areas where the difference may not have a huge financial impact. One example is the fixed assets in many of the companies. It is possible that the book value of some of the assets is lower than the fair market value. You both agreed that you would accept the book value as the value of the fixed assets so that additional fees would not be incurred."
Kaseno then stated she was uncomfortable with Randolph's subsequent requests that her valuation be adjusted downward based on the collectability of certain accounts without investigating other items that could increase her valuation.
On January 21, 2005, Randolph's attorney sent a letter to Kaseno inquiring what the additional cost would be for her to provide an updated report for a current valuation of TPR. Claudia's attorney sent Kaseno a letter three days later expressing Claudia's belief that an updated valuation was not "appropriate at this time" and informing Kaseno that if she proceeded she would be acting only for Randolph. Because the record on appeal does not contain any updated valuation, we presume none was done by Kaseno.
In January 2004, Interactive, Inc., completed a stock exchange transaction, or "reverse merger," with the shareholders of ARC, a privately-held corporation, pursuant to which Interactive changed its name to Arrowhead Research Corporation (Arrowhead) and ARC became a wholly owned, nonoperating subsidiary of Arrowhead. Pursuant to that stock exchange transaction, TPR and Old TPR, Inc. (also known as Torrey Pines Research), as shareholders of Interactive, apparently received both shares of Arrowhead common stock and warrants to purchase additional shares of Arrowhead common stock. Although the record does not show definitively how many shares of Arrowhead common stock and Arrowhead warrants those two companies received, Randolph subsequently testified in a deposition that the community's proportionate interest in the Arrowhead warrants alone was for the purchase of about 90,000 shares of Arrowhead common stock. Based on Arrowhead's prospectus dated October 7, 2004, for the sale of shares of its common stock that would be issued on exercise of its outstanding warrants, the Arrowhead warrants had an exercise price of $1.50 per share and were redeemable by Arrowhead, at its option, on 30 days' prior notice, at a price of $0.001 per warrant if certain preconditions were met. On redemption by Arrowhead, warrant holders would be required to exercise their warrants within 30 days or accept the $0.001 per warrant redemption price. Arrowhead's prospectus disclosed that:
Based on Arrowhead's 2005 annual report and its October 7, 2004, prospectus, it also appears that on completion of the January 2004 merger TPR received 19,509 shares and Old TPR, Inc., received 45,965 shares of Arrowhead common stock, in addition to the warrants each received to purchase additional shares of Arrowhead common stock.
"[Arrowhead's] Common Stock and Warrants are traded on The Nasdaq SmallCap Market and under the symbols 'ARWR,' and 'ARWRW,' respectively. On September 28, 2004, the closing sale price of our Common Stock on The Nasdaq SmallCap Market was $5.61 per share and the closing sale price of our Warrants on The Nasdaq SmallCap Market was $4.00 per warrant." (Italics added.)
On or about January 6, 2005, Claudia delivered to Randolph a preliminary declaration of disclosure that set forth their community assets, including their interest in TPR, which she stated was worth $1,052,000 (presumably based on Kaseno's valuation).
Her declaration also disclosed their community interest in "Old Torrey Pines Research" (i.e., Old TPR, Inc.) was worth $10,000. Randolph subsequently waived his right to receive a "final" declaration of disclosure from Claudia.
On or about January 26, Randolph delivered to Claudia a joint "preliminary" and "final" declaration of disclosure that set forth their community assets, including their interest in TPR, which he stated was worth $1,052,000 (also presumably based on Kaseno's valuation).
His declaration also disclosed that their community interest in "Old Torrey Pines Research" (i.e., Old TPR, Inc.) was worth $10,000.
On or about March 10, the trial court issued an order based on the parties' stipulation and referred their dispute to JAMS for mediation. That order stated: "The parties previously received a valuation report as to TPR Group conducted by Karen Kaseno. Said report shall be utilized as to the valuation of TPR Group as of the date of the parties' separation."
On May 19, the parties and their attorneys attended a mediation session with a JAMS mediator that ultimately resulted in a settlement agreement (Agreement) signed by the parties. The Agreement provided for the division of specific community property between the parties, including that all of the community's interest in TPR, Old TPR, Inc., and other related entities, was to be transferred to Randolph as his sole and separate property.
On May 20, Claudia's attorney sent Randolph's attorney a letter stating she repudiated the Agreement in its entirety, explaining she had informed him (her attorney) that she had been on medication during the mediation, did not understand what she had agreed to, and had relied on misinformation in signing the Agreement.
On June 13, Randolph filed a motion to enforce the Agreement pursuant to Code of Civil Procedure section 664.6. Claudia opposed the motion, arguing her consent to the Agreement was based on her unilateral mistake of fact because Randolph did not disclose to her the existence or value of the Arrowhead warrants until the day after the Agreement was signed (i.e., on May 20). She argued Randolph's nondisclosure regarding the Arrowhead warrants breached his statutory fiduciary duties of disclosure that continued to apply until the parties signed the Agreement dividing their community property. In support of her opposition, Claudia filed her declaration, in which she stated in part:
Code of Civil Procedure section 664.6 provides: "If parties to pending litigation stipulate, in a writing signed by the parties outside the presence of the court or orally before the court, for settlement of the case, or part thereof, the court, upon motion, may enter judgment pursuant to the terms of the settlement. If requested by the parties, the court may retain jurisdiction over the parties to enforce the settlement until performance in full of the terms of the settlement."
"One of [Randolph's] first proposals [during the May 19 mediation] was to offer me 50% of our portion of the Business [i.e., TPR] that he valued at $569,000. . . . [¶] . . . [¶] I also remember asking [the JAMS mediator] how he [i.e., Randolph] had arrived at this new Business [TPR] value. . . . In response to my question, [the JAMS mediator] said that because of the decline of the business, he had asked [Randolph] to call his partner, Bill, to come up with a new 'value' for the company -- without any 'good will.' I remember both [my attorney] and I asked why the value did not include any 'good will.' I also asked how a figure of such significance could be based on one telephone conversation. [¶] . . . [¶] . . . In good faith, I decided to make a counter offer based on [Randolph's] figure of $569,000. I took the $1.066 Million and the $569,000 and averaged the two and came up with $817,000. When [Randolph] stipulated to that amount after three years of complaining about the company(s)' inability to keep up let alone have any growth, I suspected there was an upswing which he hadn't revealed to me or to [the JAMS mediator]. Only after the agreement was signed did I gain the information to prove that is the case."
Claudia's declaration further stated that on May 20 (the day after the Agreement was signed): "I called [Randolph] and met him at his office parking lot. At first he didn't want to tell me why he needed the [$175,000 amount provided in the Agreement]. Then he said he had some 'warrants' that he needed to exercise by 6/14/05. He said he hoped to turn it around rather quickly and make a profit. I said, 'What warrants?' [Randolph] indicated that the warrants were from Arrowhead (previously Interactive), one of the entities of the community business. I calmly told [Randolph] that if there were warrants, they were community property, and if there were any profit made, it would also be community property. [Randolph] told me that was not true. He said if any profit was shared, the company would have to be revalued. [¶] . . . [¶] . . . The [Arrowhead] warrants were not included in [Kaseno's] original business evaluation. They did, however, exist at the time [Randolph] stipulated in court that the business was worth $1.066 million . . . . The existence of the warrants also helped explain why [Randolph] needed $175,000 cash on May 19 at JAMS. [¶] It should also be noted that prior to my conversation with [Randolph] on [May] 20th, he had never disclosed the existence of the [Arrowhead] warrants. In his preliminary declarations of disclosure, he failed to list the warrants. In the [Agreement], there is no mention of the warrants. In fact, the first time the warrants appear in any document provided to me or to the court is in the typed agreement which [Randolph] seeks be made the order of this Court." (Italics added.)
On September 1, Claudia's attorney took Randolph's deposition. In that deposition, Randolph implicitly admitted he knew of the Arrowhead warrants at the time of the May 19 mediation session, stating: "I believe I mentioned the warrants to [the JAMS mediator] during one of our informal conversations while we were waiting on Claudia and [her attorney] to have time to do what they were doing that I had a potential need for some liquid cash." Randolph explained at his deposition:
"I don't recall exactly what I told [the JAMS mediator]. But most likely what I told him was that it would be helpful at the end of the day for me to have some cash, approximately $130,000 and some beyond that to have available for living and that that $130,000 would be loaned to my company so that the company could exercise the warrants that were being called by Arrowhead and [due] as of a specific date, the date of which I cannot recall right now, but it was within a week or two of the JAMS mediation session. Arrowhead called the warrants. If those warrants were not exercised, those warrants would become worthless. [¶] And in order to provide or preserve the opportunity for those warrants to be converted to shares and have an opportunity for them to be worth something, they had to be exercised. [¶] . . . [¶] The strike price for the warrant[s] was $1.50 [per share]. At about the time when the warrants were actually due, the stock price was about $2 a share. And therefore, I felt and my partners felt that it was a good use of funds to exercise those warrants to achieve what was hoped to be 50 cents a share gain. . . . [¶] Now, I just described it to you more than what I believe I told [the JAMS mediator] . . . [¶] . . . [¶] That having about $130,000 of cash to exercise the approximate 90,000 warrants -- what's 9 times 1.5? It's 135? 90, 45, yeah. [¶] So having approximately $135,000 would be very convenient for me to be able to have our company not have those warrants become worthless."
Randolph recalled that the Arrowhead warrants would be exercised for 90,000 shares of unrestricted Arrowhead stock and would be publicly tradable on exercise. Randolph stated he didn't "recall specifically mentioning warrants to Claudia prior to the mediation." (Italics added.) He also admitted the Agreement did not include the word "warrants," explaining: "What was important to me was the statements in the [A]greement that I would get all the assets of those families of companies." Randolph stated that the other shareholders of TPR (presumably Hansen and Love) "came up with the money . . . to enable the company to exercise their pro rata ownership of [the Arrowhead] warrants." Randolph confirmed that 90,000 was his pro rata share of the total number of Arrowhead warrants. He further stated: "I believe in this case these warrants were exercisable by Old TPR" in which he and Claudia had a 20 percent interest. Therefore, the total number of warrants held by the company was about 450,000. He stated: "The overall valuation of the company after the [Kaseno] valuation did not significantly change . . . [¶] . . . [¶] [b]ecause of the Arrowhead/Interactive merger[;] that helped to prop up the value of the overall TPR family to somewhere near what the original [Kaseno] valuation was. [¶] So in my mind . . . the overall value did not significantly change . . . ." He further stated: "[A]t no time did I believe there was any material relevance to the overall financial picture of disclosing any of the details between how many shares of stock that our family of companies got from Arrowhead during the merger or how many Arrowhead warrants they got. That was just a detail down in the bowels of the operations of our family of businesses during that period of time." He recalled that during the May 19 mediation he and Claudia used a valuation of about $800,000 to $850,000 for their community interest in TPR and its related entities.
In his reply declaration in support of his motion, Randolph stated: "In 2004 . . ., the TPR Group acquired stocks and warrants (right to stock) in Arrowhead, Inc. This was a 'start up' company. The values of a number of other assets of [TPR] had declined significantly in value." He further stated: "It is my belief that the current total valuation would be significantly lower based on the decline in income and assets [of] Torrey Pines Research, Inc., one of the entities of TPR Group." He stated that at the JAMS mediation he "initially offered . . . to value the business at a figure in the $550,000 range" and he and Claudia "then used the $817,000 figure requested by [Claudia] as the value of the TPR Group and all related entities . . . ."
On September 9, Claudia filed supplemental points and authorities in opposition to Randolph's motion, specifically stating that Randolph "testified during his deposition that there were 450,000 warrants" in which the community had a 20 percent interest (through Old TPR), and, assuming a $2.50 per share trading price in May 2005, those warrants represented a $90,000 profit for the community's interest "never disclosed until the day after the deposition."
On November 30, the trial court issued an order granting Randolph's motion to enforce the Agreement pursuant to Code of Civil Procedure section 664.6. The court stated it was not persuaded by Claudia's concerns and objections regarding the valuation of the community property business. It noted Claudia adequately participated in the May 19 mediation with her attorney and "it is quite evident that a mediation/settlement process had taken place and that there had been a number of compromises by both parties as to the various issues including but not limited to the division of property (real/personal)."
Also on November 30, the court entered a judgment of dissolution of the parties' marriage as of November 30, 2005. The judgment divided the parties' community property and awarded to Randolph, as his sole and separate property, the community's interest in TPR, including "all companies owned, assets and stocks of Torrey Pines Research, Inc., Accuprint, Inc., Arrowhead Research, the formerly Interactive, Inc., San Diego Magnetic, Inc., Pronto, Inc., Old TPR, Inc., EMT [Eagle Manufacturing & Technology], Inc., [and] Interactive, Inc." The judgment also awarded Claudia spousal support of $2,350 per month plus 30 percent of Randolph's bonuses and commissions (excluding company distributions).
On January 13, 2006, Claudia filed a motion to set aside the judgment. In support of her motion, she submitted the declaration of the attorney (Larry Hofreiter) who represented her at the May 19, 2005, mediation, which declaration stated in part:
"At no time prior to or during the JAMS conference did [Randolph], [his attorney], or [the JAMS mediator] disclose that there were warrants on [sic] the corporation. Had such warrants been disclosed, I would have had a different recommendation to Claudia . . . regarding valuation of the business."
Also in support of her motion, Claudia submitted her declaration, in which she stated:
"[H]ad I known about the stock warrants that were later received by Arrowhead [sic] . . ., I would not have entered into the . . . [A]greement." (Italics added.)
In her memorandum of points and authorities in support of her motion, Claudia argued that she "was unaware of the existence of warrants from Arrowhead, previously Interactive, Inc. Had she been aware of those warrants, she would have not entered into the Agreement, nor would her attorney . . . [have] recommended that she enter into that Agreement." Citing Family Code section 2122, subdivision (e), and In re Marriage of Brewer & Federici (2001) 93 Cal.App.4th 1334 (Brewer), Claudia argued the judgment should be set aside based on her unilateral mistake of fact regarding the value of TPR and its related entities because Randolph did not disclose to her prior to the Agreement that the community had a pro rata interest in the Arrowhead warrants.
In opposing Claudia's motion to set aside the judgment, Randolph argued that "[f]rom June 30, 2002 [the date as of which Kaseno valued TPR and its related entities] through January, 2005, [TPR's] business and the value of [its] assets had changed. Some assets had increased in value and others had decreased in value." He further argued: "Prior to the mediation [on May 19, 2005], an asset of [TPR] had turned into a stock warrant (Arrowhead Stock). This was a highly fluctuating stock and did not exist as of June 30, 2002, when the Kaseno report was prepared. The stock was owned by [TPR] (not [Randolph]). The stock was previously simply an asset of [TPR] ('Interactive, Inc.')." He also noted that Claudia, prior to the mediation, had refused to agree to an update of Kaseno's valuation of TPR and its related entities. He argued that had there been such an updated valuation, it would have resulted in a lower value than Kaseno's valuation as of June 30, 2002. He argued: "Only fortuitously has the present value of [TPR] now increased in value because the stock warrants issued (only one asset of [TPR]) have increased in value because of stock market fluctuations." (Italics added.)
In support of his opposition to Claudia's motion, Randolph submitted his declaration, in which he stated that on May 19, 2005, the value of Arrowhead warrants owned by TPR was $821,800 and the value of Arrowhead warrants owned by Old TPR, Inc. was $226,321. As of February 1, 2006, the values of those warrants were, respectively, $1,513,614 and $738,163. However, Randolph's declaration summarily claimed that other assets of TPR had declined since Kaseno's valuation as of June 30, 2002, so that the community's interest in TPR and its related entities was worth only $746,533 on May 19, 2005, and only $1,393,155 on February 1, 2006. Randolph also explained the "reverse merger" in January 2004, pursuant to which all shareholders and creditors of Interactive, Inc., received shares and warrants to purchase shares of Arrowhead common stock, substantially as described above. He stated: "[TPR] and Old TPR owned a large portion of Interactive (84%) and they were [its] largest creditor. . . . The warrants (now stock in Arrowhead since the warrant conversion in June 2005) have subsequently increased in value [from their original nominal value of less than $.05 per share]." Randolph summarily claimed in his declaration: "Subsequent to the Arrowhead reverse merger (with Interactive), the overall value of [TPR] had actually decreased from the Kaseno valuation. Some of the ongoing concerns of [TPR] had decreased in value as shown by the chart on the prior page."
Although the valuation chart set forth in Randolph's declaration is somewhat ambiguous whether those valuations reflected the total value of all Arrowhead warrants owned by TPR and Old TPR, Inc., or whether they reflected only the parties' 23.1 percent community interest therein, for purposes of our opinion we shall assume arguendo (in Randolph's favor) that those valuations represented the total value of all the warrants owned by those companies.
In so doing, Randolph apparently made two major downward adjustments to Kaseno's valuation, as reflected in his chart: (1) a decrease from $1,499,668 to $0 for TPR's value as an "ongoing concern;" and (2) a decrease from $585,000 to $75,000 for the value of San Diego Magnetics. However, he does not explain, or provide any supporting documentation for, those significant downward adjustments.
Also in opposing Claudia's motion, Randolph lodged 20 exhibits, including excerpts from Kaseno's valuation report and Arrowhead's 2005 annual report (that apparently incorporated Arrowhead's October 7, 2004, prospectus, which annual report is included in the record on appeal). In reply, Claudia submitted a further declaration, in which she stated she and Randolph agreed that: (1) the Arrowhead warrants did not exist as of June 30, 2002; (2) Kaseno did not take into account the Arrowhead shares and warrants in performing her valuation because no such warrants existed at that time; (3) in January 2004, the Arrowhead shares and warrants became owned by TPR and Old TPR, Inc., in which she and Randolph had community interests of, respectively, 23.1 percent and 20 percent; (4) Randolph did not update his declaration of disclosure to inform her of their community property interest in the Arrowhead shares and warrants; and (5) neither Randolph nor his attorney informed either her or her attorney before or at the May 19, 2005, mediation of the existence of the Arrowhead shares and warrants. She further stated: "[Randolph] chose not to give me the complete information [regarding TPR and its related entities] including the Arrowhead stocks and warrants." She argued the judgment should be set aside and the Agreement should not be enforced because Randolph breached his fiduciary duties to her pursuant to Family Code sections 2101 and 721.
On March 6, 2006, Randolph filed a request for an award of attorney fees as a sanction against Claudia pursuant to Family Code section 271. Claudia opposed that request.
On March 29, the trial court heard arguments of counsel on Claudia's motion to set aside the judgment. Claudia's counsel argued Randolph did not update his declaration of disclosure to reflect, and breached his continuing fiduciary duty to Claudia by not disclosing to her, the existence and value of the Arrowhead warrants prior to their entering into the Agreement. In response, Randolph's counsel conceded that Randolph did not disclose the existence of the Arrowhead warrants in any document or notice to Claudia until after the May 19, 2005, mediation (and the Agreement). Randolph's counsel also argued (wrongly) that the Arrowhead warrants had "little, if any, value" as of the JAMS mediation on May 19, 2005.
Randolph's counsel also subsequently conceded, contrary to his initial representation to the trial court, that the Agreement did not contain any waiver by Claudia of Randolph's duty to provide a final declaration of disclosure before the JAMS mediation and execution of the Agreement.
Randolph stated in his declaration in opposition to Claudia's motion to set aside the judgment that the values of the Arrowhead warrants owned by TPR and Old TPR, Inc., on May 19, 2005, were, respectively, $821,800 and $216,321.
On September 14, 2006, the trial court issued its statement of decision denying Claudia's motion to set aside the judgment. The court found: "[Kaseno's] report [as of June 30, 2002] found various accounts to be uncollectible debts referred to as 'warrants'. Said debts resulted in a decreased value of the parties' community interest in [TPR]. Further, it is clear to the court that each party had used Ms. Kaseno's report in their respective Declarations of Disclosure and that these were substantially relied upon by the parties during the mediation conducted by [the JAMS mediator]." The court concluded:
"The question is whether [Claudia] has met her burden of [proving] that the Judgment resulted from reasonable or excusable neglect/mistake, or inadvertence, or that the Judgment was a result of actual fraud, perjury, duress, or mental incapacity. The answer is that she has not met that burden of proof. [Claudia] has not shown that [Randolph] knew or should have known the actual status/value of the 'warrants' at the time of the parties' [May 19, 2005] conference with [the JAMS arbitrator]. The court also finds that [Claudia] had a reasonable opportunity to obtain the current status of the 'warrants' but declined to do so as evidenced by the [e-mail] dated May 6, 2003[,] in which Ms. [Kaseno] expresses her concern and as evidenced by [Claudia's] specific instructions to Ms. Kaseno, advising her not to go forward with an updated appraisal. . . . [¶] Further, there is no evidence of any lack of cooperation from any source, including but not limited to Ms. Kaseno and [Randolph], with respect to requests for documentation. [¶] In summary, the court finds that [Claudia] has not met her burden of proving that relief to her pursuant to [Code of Civil Procedure section] 473[, subdivision] (b), Family Code [sections] 2122/721/1199 is appropriate and that the Judgment in this matter should be set aside." (Italics added.)
The court also found that Claudia "has frustrated the policy of the law of the State of California to promote settlement of litigation" and awarded Randolph attorney fees of $7,500 as a sanction against Claudia for pursuing her motion to set aside the judgment.
As support for its imposition of sanctions, the court stated: "[Claudia's e-mail] clearly indicates a desire to limit the expense/duties and responsibilities of Ms. Kaseno. After having expressly limited the scope of Ms. Kaseno's inquiry, [Claudia] now attempts to set aside the Judgment based, in essence, on the assertion that Ms. Kaseno's inquiry was too limited. The contradiction is apparent."
On October 4, the trial court issued its order denying Claudia's motion to set aside the judgment and granting Randolph's request for an award of attorney fees of $7,500 as a sanction against Claudia. In that order, the court restated the primary findings made in its September 14 statement of decision.
On October 12, Claudia filed a motion to vacate the trial court's October 4 order or, alternatively, for a new trial. In support of that motion, Claudia essentially restated the arguments she previously made in support of her motion to set aside the judgment. Randolph opposed her motion and filed a request for an award of attorney fees as a sanction against Claudia pursuant to Family Code section 271.
On or about February 9, 2007, the trial court issued an order denying Claudia's motion to vacate the October 4, 2006, order or, alternatively, for a new trial. The order also granted Randolph's request for an award of attorney fees of $4,000 as a sanction against Claudia.
On December 1, 2006, Claudia filed a notice of appeal challenging the trial court's October 4, 2006, order. That notice of appeal also purported to appeal the court's order (not yet issued) following its November 29 hearing of her motion to vacate that prior order or, alternatively, for a new trial.
Because the order denying Claudia's motion to vacate the October 4, 2006, order or, alternatively, for a new trial was not issued until February 9, 2007, Claudia's notice of appeal filed on December 1, 2006, was premature. Nevertheless, because of our disposition of her timely appeal of the October 4, 2006, order, we do not decide whether to exercise our discretion to consider her separate appeal of the trial court's February 9, 2007, order.
DISCUSSION
I
Spousal Fiduciary Duty of Disclosure during Dissolution Proceedings
Family Code section 721, subdivision (b), sets forth the general fiduciary obligations owed by spouses to each other during their marriage. Section 1100, subdivision (e), provides that those fiduciary obligations include a spousal duty of full disclosure that continues until the community's assets and liabilities have been divided.
All further statutory references are to the Family Code unless otherwise specified.
Section 2100, subdivision (c), provides that during marital dissolution proceedings, the spousal duty of full disclosure continues until the spouses reach a settlement or until trial:
"[A] full and accurate disclosure of all assets and liabilities in which one or both parties have or may have an interest must be made in the early stages of a proceeding for dissolution of marriage or legal separation of the parties, regardless of the characterization as community or separate, together with a disclosure of all income and expenses of the parties. Moreover, each party has a continuing duty to immediately, fully, and accurately update and augment that disclosure to the extent there have been any material changes so that at the time the parties enter into an agreement for the resolution of any of these issues, or at the time of trial on these issues, each party will have a full and complete knowledge of the relevant underlying facts." (Italics added.)
Similarly, section 2102, subdivision (a), provides:
"From the date of separation to the date of the distribution of the community or quasi-community asset or liability in question, each party is subject to the standards provided in Section 721, as to all activities that affect the assets and liabilities of the other party, including, but not limited to, the following activities: [¶] (1) The accurate and complete disclosure of all assets and liabilities in which the party has or may have an interest or obligation . . ., including an immediate, full, and accurate update or augmentation to the extent there have been any material changes." (Italics added.)
To help ensure those spousal duties of disclosure are fulfilled during marital dissolution proceedings, the Family Code imposes on spouses a duty to serve on each other preliminary and final declarations of disclosure. (§§ 2103, 2104, subd. (c), 2105, subds. (a), (b).) Section 2104, subdivision (c), provides: "The preliminary declaration of disclosure shall set forth with sufficient particularity . . . [¶] (1) The identity of all assets in which the declarant has or may have an interest . . . ." Section 2105, subdivision (a), provides: "[B]efore or at the time the parties enter into an agreement for the resolution of property or support issues . . ., or, if the case goes to trial, no later than 45 days before the first assigned trial date, each party . . . shall serve on the other party a final declaration of disclosure . . ., executed under penalty of perjury . . ., unless the parties mutually waive the final declaration of disclosure." Section 2105, subdivision (b), provides: "The final declaration of disclosure shall include . . . [¶] . . . [¶] (2) All material facts and information regarding the valuation of all assets that are contended to be community property or in which it is contended the community has an interest." (Italics added.)
Although spouses may waive the requirement that they serve on each other a final declaration of disclosure, the waiver does not include a waiver of their continuing statutory duties of full disclosure. (§ 2105, subd. (d).) Section 2105, subdivision (d), provides:
"The parties may stipulate to a mutual waiver of the requirements of subdivision (a) concerning the final declaration of disclosure, by execution of a waiver . . . . The waiver shall include all of the following representations: [¶] . . . [¶]
"(3) Both parties have fully complied with Section 2102 and have fully augmented the preliminary declaration of disclosure, including disclosure of all material facts and information regarding . . . the valuation of all assets that are contended to be community property . . . . [¶] . . . [¶]
"(5) Each party understands that this waiver does not limit the legal disclosure obligations of the parties, but rather is a statement under penalty of perjury that those obligations have been fulfilled. Each party further understands that noncompliance with those obligations will result in the court setting aside the judgment." (Italics added.)
If a spouse breaches his or her statutory duty of full disclosure, a judgment of dissolution is subject to being set aside. (§ 2107, subd. (d).) Section 2107, subdivision (d), provides: "If a court enters a judgment when the parties have failed to comply with all disclosure requirements of this chapter, the court shall set aside the judgment. The failure to comply with the disclosure requirements does not constitute harmless error." Although section 2107, subdivision (d), ostensibly requires a judgment of dissolution to be set aside even though no harm was caused by a spouse's breach of his or her duty of full disclosure, one court has nevertheless held a "litigant must identify some portion of the judgment materially affected by the nondisclosure." (In re Marriage of Steiner & Hosseini (2004) 117 Cal.App.4th 519, 528; see also § 2121, subd. (b).)
II
Order Denying Claudia's Motion to Set Aside the Judgment
Claudia contends that because Randolph breached his fiduciary duty to disclose to her all material facts regarding the valuation of their community property interest in TPR and its related entities (i.e., did not disclose the existence or value of the Arrowhead warrants owned by TPR and Old TPR, Inc.) before they entered into a marital settlement agreement, the trial court erred by denying her motion to set aside the judgment of dissolution entered on that agreement.
Because Claudia has not presented any substantive argument challenging the trial court's order denying her motion to the extent that order upheld the judgment's dissolution of the parties' marriage and awarded her spousal support, we conclude she has not carried her burden on appeal to show the court erred on those matters.
A
Section 2121, subdivision (a), authorizes a trial court to set aside all or part of a judgment of dissolution of marriage "on any terms that may be just," regardless of the six-month time limit (or other provisions) of Code of Civil Procedure section 473. Section 2122 sets forth the grounds and time limits for a motion to set aside all or part of a judgment of dissolution. Section 2122, subdivision (e), provides one ground and time limit: "As to stipulated or uncontested judgments or that part of a judgment stipulated to by the parties, mistake, either mutual or unilateral, whether mistake of law or mistake of fact. An action or motion based on mistake shall be brought within one year after the date of entry of judgment." (Italics added.) Section 2122, subdivision (f), provides another ground and time limit: "Failure to comply with the disclosure requirements of Chapter 9 (commencing with Section 2100). An action or motion based on failure to comply with the disclosure requirements shall be brought within one year after the date on which the complaining party either discovered, or should have discovered, the failure to comply." Section 2121, subdivision (b), requires that the party moving to set aside the judgment of dissolution must show the ground for relief "materially affected the original outcome" and he or she "would materially benefit from the granting of the relief."
On appeal from an order denying a motion to set aside a judgment of dissolution of marriage, we apply the abuse of discretion standard of review. (Brewer, supra, 93 Cal.App.4th at p. 1346.) Although we may not substitute our discretion for that of the trial court, "[t]he trial court's exercise of discretion must be guided . . . by fixed legal principles, and must 'be exercised in conformity with the spirit of the law and in a manner to subserve and not to impede or defeat the ends of substantial justice.' " (In re Marriage of Varner (1997) 55 Cal.App.4th 128, 138.)
B
In moving to set aside the judgment, Claudia argued that Randolph did not disclose the existence of the Arrowhead warrants. Citing section 2122, subdivision (e), and Brewer, supra,93 Cal.App.4th 1334, Claudia argued the judgment should be set aside based on her unilateral mistake of fact regarding the value of TPR and its related entities because Randolph did not disclose to her prior to execution of the Agreement that the community had a pro rata interest in the Arrowhead warrants.
There is no evidence in the record showing Randolph, either prior to or at the JAMS mediation on May 19, 2005, disclosed to Claudia the existence or valuation of the Arrowhead warrants. On the contrary, the evidence supports only a finding that he did not disclose that information to her. Furthermore, contrary to the trial court's finding, the evidence supports only a finding that Randolph actually knew about the Arrowhead warrants prior to May 19, 2005 (if not on their issuance in January 2004). Nevertheless, for Randolph's nondisclosure to constitute a breach of his statutory duty of full disclosure, the information withheld by him must have been material or reflected a material change to information previously given to Claudia. (§§ 1100, subd. (e); 2100, subd. (c); 2102, subd. (a).) Considering the entire record on appeal, we conclude the evidence supports only a finding that Randolph's nondisclosure of information about the Arrowhead warrants was material to the community's interest in TPR and its related entities. The issuance of the Arrowhead warrants and their substantial (albeit fluctuating) value from January 2004 through May 19, 2005, constituted a material change in information he previously disclosed to Kaseno (and therefore Claudia) regarding TPR and its related entities. Therefore, Randolph's nondisclosure of that material change breached his continuing duty to "immediately, fully, and accurately update and augment" his previous disclosure. (§ 2100, subd. (c).)
The trial court found: "[Claudia] has not shown that [Randolph] knew or should have known the actual status/value of the 'warrants' at the time of the parties' [May 19, 2005] conference with [the JAMS arbitrator]." We conclude there is insufficient evidence to support that finding by the trial court. In Randolph's deposition, he stated he told the JAMS mediator (but not Claudia) about the Arrowhead warrants and admitted knowing he needed about $135,000 cash to exercise the community's valuable 90,000 Arrowhead warrants that Arrowhead had called.
In preparing her valuation of TPR and its related entities as of June 30, 2002, Kaseno relied on Randolph's representation that Interactive, Inc., had a negative value and therefore TPR's investment in it was worthless. Based on that representation and other information provided by Randolph, Kaseno concluded that the community's 23.1 percent interest in TPR was worth $1,052,000 and its interest in Old TPR, Inc., was worth $10,000. However, in January 2004, Interactive, Inc., completed the stock exchange transaction, or "reverse merger," pursuant to which it changed its name to Arrowhead and TPR and Old TPR, Inc., as shareholders of Interactive, Inc., received both shares of Arrowhead common stock and warrants to purchase additional shares of Arrowhead common stock. Although Arrowhead's common stock and warrants may not have had any significant value on their initial issuance in January 2004, that soon changed (as reflected in Arrowhead's 2005 annual report). From January 2004 through March 2004, the price of Arrowhead's publicly traded common stock ranged from $1.95 per share to $15.00 per share, presumably making the community's pro rata interest in the 90,000 Arrowhead warrants worth from about $40,550 to $1,215,000 (after deducting the $1.50 per warrant exercise price), yet Randolph did not update Claudia with that information during that period. From April 2004 through June 2005, the value of the community's pro rata interest in the 90,000 Arrowhead warrants remained within that range (although their highest value during that period never exceeded $675,000).
For example, Arrowhead's October 7, 2004, prospectus stated that on September 28, 2004, Arrowhead's common stock publicly traded for $5.61 per share and its warrants publicly traded for $4.00 per warrant. After deducting the $1.50 per warrant exercise price, the community's pro rata interest in the 90,000 Arrowhead warrants was therefore worth $2.50 per warrant, or a total of $225,000, on that date.
From the time TPR and Old TPR, Inc., received the Arrowhead warrants (in January 2004) through the date of the parties' JAMS mediation and the Agreement (May 19, 2005), Randolph never disclosed to Claudia either the existence or the value of the Arrowhead warrants in which the community in effect held an indirect interest through its 23.1 percent ownership of TPR and 20 percent ownership of Old TPR, Inc. Considering the substantial (albeit fluctuating) value of the community's pro rata interest in the Arrowhead warrants (i.e., 90,000 warrants, as Randolph stated at his deposition), we conclude Randolph breached his continuing duty to immediately, fully, and accurately disclose to Claudia all material changes to the valuation of the community's assets. (§§ 1100, subd. (e); 2100, subd. (c); 2102, subd. (a).) Randolph originally represented to Kaseno (and therefore indirectly to Claudia) that Interactive, Inc. (now Arrowhead), was worthless as of June 30, 2002. Yet he never updated that representation by disclosing to Claudia the existence or value of the Arrowhead warrants since their issuance to TPR and Old TPR, Inc., in January 2004 or thereafter until the day after the Agreement was signed (i.e., on May 20, 2005).
Although in opposing Claudia's motion to set aside the judgment Randolph summarily argued other assets of TPR and its related entities declined in value, he provided no proof of changes in those other assets. Absent such proof, we cannot blindly accept his apparent assertion that any increase in the value of TPR and its related entities because of their receipt of the Arrowhead warrants was necessarily offset by a decrease (in an equal or greater amount) in the value of other assets owned by TPR and its related entities. Because Randolph was involved in the internal operations of those entities and Claudia was not, he had access to the information regarding increases and decreases in value and, therefore, had an accompanying duty to disclose any material changes in the value of the assets of TPR and its related entities. Randolph breached his statutory duty of full disclosure by not doing so.
In any event, to the extent those changes materially affected the value of TPR and its related entities, he likewise should have immediately, fully, and accurately disclosed those material changes to Claudia and therefore arguably breached his continuing duty of full disclosure by not doing so.
Although Randolph breached his statutory duty of full disclosure (contrary to the trial court's implied finding), we presume Claudia also was required to show that his breach materially affected the original outcome (i.e., the judgment) and she would materially benefit from the granting of her motion to set aside the judgment. (§ 2121, subd. (b).) We conclude the record supports only the inference that had Claudia been informed of the existence and value of the Arrowhead warrants, she would not have entered into the Agreement that constituted the basis for the judgment.
Although section 2107, subdivision (d), ostensibly requires a judgment of dissolution to be set aside even though no harm was caused by a spouse's breach of his or her duty of full disclosure, one court has nevertheless held a "litigant must identify some portion of the judgment materially affected by the nondisclosure." (In re Marriage of Steiner & Hosseini, supra, 117 Cal.App.4th at p. 528.)
In opposing Randolph's motion to enforce the Agreement, Claudia argued her consent to the Agreement was based on her unilateral mistake of fact because Randolph did not disclose to her the existence or value of the Arrowhead warrants until the day after the Agreement was signed (i.e., on May 20). In her declaration in opposition to Randolph's motion, she stated: "In good faith, I decided to make a counter offer based on [Randolph's] figure of $569,000. I took the $1.066 Million and the $569,000 and averaged the two and came up with $817,000." Therefore, because Randolph represented to her that TPR's business had been declining and was worth only $569,000 on May 19, 2005 (instead of Kaseno's valuation of $1,066,000 as of June 30, 2002), Claudia agreed with Randolph to essentially "split the difference" and use a $817,000 valuation for TPR and its related entities. Had Claudia known of the existence and value of the Arrowhead warrants, she would not have agreed to that lesser valuation. In fact, it is entirely possible that had she known of the existence and value of the Arrowhead warrants, she would have argued for a valuation of TPR and its related entities greater than the $1,066,000 valuation calculated by Kaseno as of June 30, 2002, which had been based, in part, on Randolph's representation that Interactive, Inc. (now Arrowhead), was worthless.
The investment of TPR and its related entities in Interactive, Inc. (now Arrowhead), increased in value from $0 to a very substantial amount (albeit a fluctuating amount). Therefore, the community's pro rata interest in TPR and its related entities likewise increased. Had Randolph immediately, fully, and accurately disclosed that information to Claudia, she presumably would not have agreed to a value less than $1,066,000 for TPR and its related entities (including Old TPR, Inc.) even had she accepted his summary assertion that the other businesses or assets of TPR and its related entities had declined in value. Therefore, she would not have agreed to the "compromise" valuation of $817,000 for TPR and its related entities during the JAMS mediation, which lesser valuation was then reflected in the Agreement. In Claudia's declaration in support of her motion to set aside the judgment, she stated she would not have entered into the Agreement had she known of the Arrowhead warrants. Furthermore, her attorney's declaration stated he would have had a different recommendation regarding the valuation of TPR and its related entities had Randolph disclosed the existence of the Arrowhead warrants.
Therefore, the evidence supports a finding that Claudia would not have entered into the Agreement had Randolph immediately, fully, and accurately disclosed the existence and value of the Arrowhead warrants. Without the Agreement, the judgment based on the Agreement would not have been entered. Accordingly, Claudia has satisfied her burden to show Randolph's nondisclosure regarding the Arrowhead warrants materially affected the original outcome (i.e., the judgment). (§ 2121, subd. (b).)
We also conclude Claudia has shown she would materially benefit from the granting of her motion to set aside the judgment. The record on appeal shows the value of the Arrowhead warrants (as well as the Arrowhead common stock) owned by TPR and Old TPR, Inc., prior to the JAMS mediation on May 19, 2005, far exceeded the $0 value attributed to their investment in Interactive, Inc. (now Arrowhead), by Kaseno as of June 30, 2002. Therefore, had Randolph immediately, fully, and accurately disclosed the existence and value of the Arrowhead warrants, Claudia would not have agreed to a lesser value than $1,066,000 for the community's interest in TPR and its related entities and likely would have insisted on a greater value. Accordingly, one of two results could have occurred: (1) Claudia would have negotiated a valuation for TPR and its related entities greater than $817,000, resulting in a settlement agreement with a more favorable property division for her; or (2) the parties would not have reached a settlement agreement and their dispute would have proceeded to trial. Under the first scenario, the evidence strongly supports a finding Claudia would not have agreed to a community property settlement based on the lesser $817,000 "compromise" valuation of the community's interest in TPR and its related entities, but rather would have insisted on a valuation of $1,066,000, if not greater. That significant increase in the valuation of the community's interest in TPR and its related entities cannot be deemed immaterial.
Under the second scenario, had Randolph disclosed the existence and value of the Arrowhead warrants and the parties not entered into the Agreement or other settlement agreement, the dispute regarding the valuation of community's property would have proceeded to trial. At trial, Claudia presumably could prove the community's interest in TPR and its related entities was substantially greater than the $817,000 "compromise" amount reflected in the Agreement. Furthermore, despite Randolph's summary assertions that other assets of TPR and its related entities had declined in value, he has submitted no evidence in support of those assertions (other than summary statements in his declaration). Randolph's declaration summarily claimed that other assets of TPR had declined since Kaseno's valuation as of June 30, 2002, so that the community's interest in TPR and its related entities was worth only $746,533 on May 19, 2005, and only $1,393,155 on February 1, 2006. In arriving at those valuations, Randolph apparently made two major downward adjustments to Kaseno's valuation: (1) a decrease from $1,499,668 to $0 for TPR's value as an "ongoing concern;" and (2) a decrease from $585,000 to $75,000 for the value of San Diego Magnetics. However, he does not explain, or provide any supporting documentation, for those significant downward adjustments. Absent supporting evidence, we cannot conclude a trial court likely would have accepted those alternative valuations suggested by Randolph.
Similarly, to the extent Randolph argues other community assets (e.g., the community residence) awarded to Claudia pursuant to the Agreement and judgment [would have] increased in value since June 30, 2002 (or May 19, 2005), and therefore would have matched the increase in value of the community's interest in TPR and its related entities awarded to him pursuant to the Agreement and the judgment, we decline to speculate as to the valuation of those other community assets awarded to Claudia. The record on appeal is insufficient for us to calculate the amount, if any, of the purported increase in the value of the community assets awarded to Claudia. Likewise, the record is insufficient to conclude the value of other community assets awarded to Randolph (i.e., other than TPR and its related entities) did not similarly increase. On remand, we leave it to the parties to enter into negotiations anew, based on their immediate, full, and accurate disclosure of material information regarding the community's assets and material changes thereto, in reaching a different settlement agreement or, if not, to present their respective cases at trial for a determination by the trial court regarding the division of their community property.
In any event, we note that had the parties not entered into the Agreement and their dispute proceeded to trial, it is likely that trial would not have occurred until long after May 19, 2005. Even considering only Randolph's declaration, it appears the community's interest in TPR and its related entities continued to increase from $746,533 on May 19, 2005, to $1,393,155 on February 1, 2006. Although the trial likely would have occurred prior to February 1, 2006, it nevertheless appears Randolph's declaration alone provides strong evidence to support a finding that the value of the community's interest in TPR and its related entities as of the time of the eventual trial would have been substantially greater than the $817,000 "compromise" amount reflected in the Agreement. Therefore, under either of the two scenarios, we conclude Claudia would have materially benefited had the trial court granted her motion to set aside the judgment.
Accordingly, we conclude Claudia has satisfied her burden under section 2121, subdivision (b), to show her unilateral mistake of fact regarding the value of the community's interest in TPR and its related entities (resulting from Randolph's breach of his duty of full disclosure regarding the Arrowhead warrants) materially affected the original outcome (i.e., the judgment) and she would materially benefit from the granting of her motion to set aside the judgment. Therefore, we conclude the trial court abused its discretion by denying Claudia's motion to set aside the judgment pursuant to sections 2121 and 2122.
Alternatively, under the more general standard of prejudice, we conclude in the circumstances of this case that it would be a miscarriage of justice to enforce the Agreement and uphold the order denying Claudia's motion to set aside the judgment. (Cal. Const., art. VI, § 13; In re Marriage of Steiner & Hosseini, supra, 117 Cal.App.4th at pp. 522, 526-528.)
Because we conclude the trial court abused its discretion by denying Claudia's motion pursuant to sections 2121 and 2122, we need not address her alternative contention that the court also abused its discretion by denying her motion to set aside the judgment pursuant to Code of Civil Procedure section 473.
C
Claudia asserts Brewer is apposite to this case and supports a conclusion that the trial court abused its discretion by denying her motion to set aside the judgment. In Brewer, the wife was an executive employed by the NBC television network, earned a substantial salary, and accrued rights to and interests in NBC's pension plan and savings program. (Brewer, supra, 93 Cal.App.4th at pp. 1337-1338.) The husband was unemployed. (Id. at p. 1337.) In the course of their marital dissolution proceedings, the wife delivered to the husband a final declaration of disclosure that stated the fair market value of her NBC pension was "unknown" and the fair market value of her NBC savings program was $168,561. (Id. at p. 1338.) Based thereon, the parties entered into a marital settlement agreement that provided for an award to the wife of the community's interest in the NBC pension plan and savings program. (Id. at p. 1337.) The husband received an equalizing payment of $149,000 (among other assets). (Ibid.) The parties agreed to a stipulated judgment (based on their agreement), which judgment was then entered. (Id. at p. 1339.)
Subsequently, the husband filed a motion to set aside the judgment, arguing that the wife had not valued her NBC pension plan in her final declaration of disclosure or otherwise. (Brewer, supra, 93 Cal.App.4th at p. 1339.) In support of his motion, he submitted the declaration of an expert who stated the wife's interest in the NBC pension plan was worth over $286,000 at the time of their agreement. (Id. at pp. 1339-1340.) The husband also submitted a complete annual statement of the wife's NBC savings program showing its worth was over $232,000 at the time of their agreement. (Ibid.) The wife had not attached to her final declaration the pages reflecting that increased amount. (Id. at p. 1340.) The husband also asserted he made a unilateral mistake of fact because he did not understand the wife had both an NBC pension plan and an NBC savings program, believing instead she had only one retirement plan that he believed was worth only $168,561. (Ibid.)
In opposition, the wife argued she did not understand how her pension plans worked and valued the NBC pension plan as "unknown" because she did not know its value. (Brewer, supra, 93 Cal.App.4th at p. 1340.) However, she acknowledged she had not attempted to ascertain the value of her NBC pension plan. (Ibid.) Finding the husband had satisfied the requirements of section 2121, subdivision (b), the trial court granted his motion to set aside the judgment. (Id. at pp. 1340-1341.) The court found the wife's final declaration of disclosure failed to disclose both the value of her NBC pension plan and the current value of her NBC savings program. (Id. at p. 1341.) Those omissions led to a mistake of fact regarding the values of the community's two largest assets. (Id. at p. 1342.)
On appeal, Brewer discussed the spousal statutory duty of full disclosure. (Brewer, supra, 93 Cal.App.4th at pp. 1342-1344.) It stated: "[S]pouses may be relieved of a stipulated judgment based upon incomplete or inaccurate information. [Citations.]" (Id. at p. 1345.) Brewer concluded the evidence supported the trial court's finding the husband made a unilateral mistake because he did not have accurate and complete valuations of his wife's retirement plans. (Id. at p. 1346.) It stated: "The valuation information [on the wife's final declaration of disclosure] about the [savings program] was neither current nor accurate." (Ibid.) Also, the wife "never provided [the husband] with a valuation of" her pension plan. (Ibid.) Because the wife's retirement plans "were the largest community assets[,] their values were material to resolving the issues between the parties." (Ibid.) The husband "agreed to a resolution of the property issues based upon incomplete, inaccurate, and omitted information." (Ibid.) Brewer rejected the wife's contention that she met her disclosure duties by disclosing the existence of both retirement plans, along with information known to her and information from which the assets could be valued. (Id. at p. 1347.) It noted that the wife had undervalued the savings program by at least $63,000. (Ibid.) Furthermore, in stating the value of her pension plan was "unknown," the wife did not make sufficient disclosure. (Ibid.)
Brewer rejected the wife's argument that the husband could not have been mistaken because he did not fulfill his duty to value the retirement plans. (Brewer, supra, 93 Cal.App.4th at pp. 1347-1348.) Brewer stated:
"[The wife's] argument overlooks the fact that the Family Code imposes fiduciary obligations on both parties. One obligation is to make full, accurate, and complete disclosure, including the continuing duty to update and augment information. [Citations.] It reasonably follows that a spouse who is in a superior position to obtain records or information from which an asset can be valued and can reasonably do so must acquire and disclose such information to the other spouse. [Citation.]
"The two pension plans were the major community assets and were grossly undervalued by [the wife]. Even if [the wife] did not intentionally mislead [the husband], she was in a superior position to gain access to the information from which valuations for these assets could be determined. . . . There was no evidence suggesting it would have been unreasonable for [the wife] to obtain current and accurate valuation information about the pension plans, both of which came from her employer. [The husband] was entitled to rely upon the information provided to him. [Citation.]" (Brewer, supra, 93 Cal.App.4th at p. 1348, italics added.)
Nevertheless, Brewer recognized the parties were free to agree to an unequal distribution of community assets, provided that agreement was based on full disclosure of their existence and value:
"By our discussion we do not mean to suggest that [the husband and the wife] lacked the ability to decide upon an unequal distribution of assets. [Citations.] As long as such agreement is based upon a complete and accurate understanding of the existence and value of community and separate assets that are material to the agreement, the parties are free to decide on an unequal distribution." (Id. at p. 1349.)
Accordingly, Brewer affirmed the trial court's order granting the husband's motion to set aside the judgment and marital settlement agreement based on mistake. (Id. at p. 1349.)
As in Brewer, Claudia's motion to set aside the judgment was based on her unilateral mistake of fact regarding the value of the community's assets, which mistake was caused by the other spouse's (Randolph's) breach of his duty to immediately, fully, and accurately disclose all material information regarding the community's assets and any material changes thereto. Furthermore, like the wife in Brewer, Randolph was in a superior position to ascertain both the existence and value of the particular community asset (i.e., the community's pro rata interest in the Arrowhead warrants owned by TPR and Old TPR, Inc.). Therefore, it was Randolph's duty to immediately, fully, and accurately disclose to Claudia both the existence and value of the Arrowhead warrants and thereafter update that information to the extent there were any material changes up until trial or until the parties reached a settlement agreement regarding division of their property based on that complete and accurate disclosure.
D
Randolph did not satisfy his statutory duty of full disclosure by listing in his "preliminary" and "final" declarations of disclosure only Kaseno's valuation of TPR and its related entities. That valuation was made by Kaseno as of June 30, 2002, and was based on Randolph's representation that Interactive, Inc. (now Arrowhead), was worthless. However, because in January 2004, TPR and Old TPR, Inc., received common stock and warrants to purchase common stock of Arrowhead, which stock and warrants became valuable soon thereafter, Kaseno's valuation was no longer complete or accurate. Accordingly, because Randolph was in a superior position to learn of the existence of the Arrowhead warrants and their value, he had a duty to immediately, fully, and accurately disclose that information to Claudia and thereafter update that disclosure to the extent there were material changes. Because both the common stock and warrants of Arrowhead were publicly traded, information regarding the value of the Arrowhead warrants was easily obtainable by Randolph.
Furthermore, the parties did not stipulate to Kaseno's valuation of the community's interest in TPR and its related entities in the division of their property. Rather, prior to their JAMS mediation the parties stipulated that Kaseno's valuation was to be "utilized" in their mediation. That is different from agreeing during mediation and in the Agreement to Kaseno's valuation. Furthermore, the record shows Randolph successfully argued during mediation for a lesser valuation of that interest than Kaseno's valuation. He argued it was worth only $569,000 and, based thereon, Claudia agreed to a reduction to $817,000, rather than using Kaseno's $1,066,000 valuation of the community's interest in TPR and its related entities. Therefore, Randolph's assertion on appeal is contradicted by his own conduct during mediation. In any event, despite any stipulation by the parties prior to mediation to use Kaseno's valuation during mediation, Randolph nevertheless had a continuing duty to update Kaseno's valuation with immediate, full, and accurate disclosure regarding any material changes affecting that valuation or the community's interest in TPR and its related entities. He did not fulfill that continuing duty of full disclosure.
In re Marriage of Burkle (2006) 139 Cal.App.4th 712 and the other cases cited by Randolph are inapposite and do not persuade us to reach a contrary result.
Likewise, although in granting Randolph's motion to enforce the Agreement the trial court stated "it is quite evident that a mediation/settlement process had taken place and that there had been a number of compromises by both parties as to the various issues including but not limited to the division of property (real/personal)," the parties' compromise reflected in the Agreement was not based on complete and accurate information regarding the parties' property because, as discussed above, Randolph did not satisfy his statutory duty of full disclosure to inform Claudia regarding the existence and value of the Arrowhead warrants. "The formulation of a marital settlement agreement is not an ordinary business transaction, resulting from an arm's-length negotiation between adversaries. Rather, it is the result of negotiations between fiduciaries required to openly share information." (Brewer, supra, 93 Cal.App.4th at p. 1344.) Because Randolph did not satisfy his statutory duty of full disclosure, any purported arm's-length negotiation of and agreement on the value of the community's interest in TPR and its related entities was not based on complete and accurate information and therefore the Agreement should not be enforced.
III
Sanctions
Claudia also contends the trial court abused its discretion by imposing a sanction of $7,500 against her for pursuing her motion to set aside the judgment. Because we concluded above the trial court abused its discretion in denying her motion to set aside the judgment, we also conclude the trial court abused its discretion by imposing the sanction against her for pursuing that motion.
Claudia also contends the trial court abused its discretion by imposing sanctions of $4,000 against her for pursuing her subsequent motion to vacate its order denying her motion to set aside the judgment or, alternatively, for a new trial. However, because we concluded above the trial court abused its discretion in denying her motion to set aside the judgment, we also conclude the trial court's order denying her subsequent motion must automatically be vacated with our reversal of the court's first order. Therefore, the trial court's imposition of a sanction of $4,000 against Claudia must likewise be vacated.
DISPOSITION
The order denying Claudia's motion to set aside the judgment is reversed. The matter is remanded with directions that the trial court: (1) vacate that order and its subsequent order denying her motion to vacate that order or, alternatively, for a new trial; (2) vacate its orders imposing sanctions against Claudia; and (3) enter a new order granting her motion to set aside the judgment to the extent it divided and distributed the parties' separate and community property. Claudia shall recover her costs on appeal.
To the extent the judgment dissolved the parties' marriage and awarded Claudia spousal support, that part of the judgment shall not be set aside.
WE CONCUR: HUFFMAN, Acting P. J., McINTYRE, J.