COURT OF APPEAL, FOURTH APPELLATE DISTRICT DIVISION ONE STATE OF CALIFORNIA
December 1, 2010
IN RE THE MARRIAGE OF MICHAEL W. LOSSE AND BLANCA MONTANO. MICHAEL W. LOSSE, PLAINTIFF AND RESPONDENT,
BLANCA MONTANO, DEFENDANT AND RESPONDENT.
APPEAL from a judgment of the Superior Court of San Diego County, Joel Wohlfeil, Judge. Affirmed. (Super. Ct. No. D487761)
The opinion of the court was delivered by: McINTYRE, J.
Marriage of Losse and Montano
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.
Michael W. Losse and Blanca Montano both appeal from the dissolution judgment that followed their February 2009 trial on reserved issues. In his appeal, Losse argues that the court erred in awarding Montano spousal support in the sum of $7,000 per month for 30 months, and attorneys fees totaling $75,000 minus credits. On cross-appeal, Montano contends the court erred in failing to award retroactive guideline child support from March 2006 forward, or impose monetary sanctions against Losse for his breach of fiduciary duty. In the event we reverse the prospective spousal support award, Montano asserts that the court should have awarded her retroactive spousal support and 100 percent of the value of Willow Cove Investment Group, Inc. (Willow Cove), Losse's business.
We affirm the judgment in its entirety. In light of this resolution, we need not address the last issue in Montano's cross-appeal.
FACTUAL AND PROCEDURAL BACKGROUND
Losse and Montano were married on September 11, 1999, and separated on December 21, 2004. Both were in their mid-forties. There are two children of the marriage, aged six and eight at the time of trial. The court entered the judgment of dissolution as to marital status on March 9, 2006, reserving jurisdiction over child support, spousal support, child custody and visitation, valuation of Losse's business interests, and division of personal property. This appeal concerns the judgment entered following trial on the reserved issues.
Montano is a registered nurse specializing in neo-natal care who worked four 12-hour shifts every two weeks. Montano testified that by working less than full time as a per diem nurse, she was able to choose her shifts and accommodate the children's schedule. She earned $42.28 per hour plus a $2.00 shift differential, for an average of $4,390 per month as of January 22, 2009.
Losse is a licensed stock broker and financial planner who worked between 45 and 60 hours a week. Losse and John McDonald owned L.M. Squared Investments, LLC (L.M. Squared), a "support entity" that was the sole owner of the brokerage firm Willow Cove. There was conflicting evidence on whether Losse owned the minority or majority interest in L.M. Squared. In any event, McDonald was a "silent partner," leaving Losse in complete control of the business. Losse declared that he received an average monthly income of $5,000 in 2006, zero in 2007, and zero in 2008. However, in his opening brief on appeal, Losse represents that he earned "approximately $6,000 per month in all recent years except 2006."
Montano had difficulty obtaining Losse's financial records. She repeatedly subpoenaed information about his income and assets. In January 2008, after denying Losse's petition to quash her subpoena of bank records, the court reminded the parties of their obligations as fiduciaries under Family Code sections 721, subdivision (b) and 1100, subdivision (e). (Undesignated statutory references are to the Family Code.)
At trial, Montano introduced a 2006 W-2 form which showed that Losse's annual income was $435,380, not the $35,380 which appeared on the W-2 form he had earlier produced. Montano also introduced documents showing that Losse opened an account with Scottrade in January 2006 with an initial deposit of $62,500. The Scottrade account had a total value of $227,680.46 on March 31, 2006. Losse did not disclose this account in the income and expense declaration he filed on February 17, 2006. At trial, Losse repeatedly asserted his Fifth Amendment right to remain silent when presented with evidence regarding his income and assets.
The court appointed John Cooper to provide a neutral valuation of the community business interests. In October 2006, Cooper conducted limited review of the records of L.M. Squared and Willow Cove to determine whether there was sufficient value to warrant complete appraisals of those businesses. Cooper concluded that the parties' interest in the combined businesses was worth $154,721 as of December 31, 2005. Cooper prepared a second draft report in October 2007 which was introduced at trial. There he concluded that the value of the parties' interest in the combined businesses was $144,800 on December 31, 2004. In preparing his draft reports, Cooper interviewed Montano and Losse, and reviewed the financial information Losse provided. However, Losse denied Cooper access to his business accountant and refused to comply with Cooper's numerous requests for additional financial documents. Cooper requested detailed general ledgers and was told they did not exist. At trial, Cooper testified he could not stand by the conclusions reached in the second draft report because he had reason to believe the information received from Losse was inaccurate. Losse testified at trial that his interest in Willow Cove had no value on December 31, 2004.
McDonald sued Losse for damages and dissolution of L.M. Squared and Willow Cove. In her opposition to Losse's June 2008 petition to quash subpoena of bank records, Montano sought judicial notice of documents from the McDonald litigation, including a motion for continuance that cited Losse's "discovery games." In August 2008, the court denied Losse's motion to quash Montano's subpoena of W-2 forms and other earnings records, and directed Losse not to object to subpoena of documents relating to the McDonald case. At trial, Montano introduced evidence obtained through McDonald's counsel, including Losse's deposition testimony admitting that he had not given Montano's lawyer the true 2006 W-2 form.
At the close of testimony, the court observed that concluding Losse had breached his fiduciary duty was not "overly difficult," but identifying a remedy proportionate to the breach was "challenging." Following argument, the court made the following findings and orders relevant to child support, breach of fiduciary duty, spousal support, valuation of the business, and attorney fees:
1. Child Support: The court found that Losse as non-custodial parent had a child custody share of 48 percent and paid $336 per month for the children's health insurance. It attributed income of $6,000 per month to Losse. As to Montano, the court found she paid $92 per month for dental insurance. It attributed a monthly income of $4,338 to Montano. Based on these findings, the court ordered Losse to pay child support to Montano in the total amount of $124 per month, with Losse continuing to pay health insurance premiums and Montano continuing to pay dental insurance premiums. In addition, the court admonished Montano to take reasonable steps to become self-supporting, and imputed to her a monthly income of $6,656, effective 30 months from March 1, 2009.
2. Breach of Fiduciary Duty: The court found by "clear and convincing evidence" that Losse breached his fiduciary duty by misrepresenting his income to Montano. The court stated that it considered the 2006 W-2 showing an income of $35,380.15 to be "fabricated." It further found that Montano was harmed by Losse's false representation of his income "in that though she believed [his] income was greater than represented, she lacked evidence that would have enabled her to seek support before trial. [Montano] engaged in expensive, time-consuming discovery and investigation, all of which could and should have been avoided had [Losse] been forthright about his income in the first place." The court expressly rejected Losse's testimony as untrustworthy. Its remedies for breach of fiduciary duty are reflected in the rulings on spousal support, valuation of the business, and attorney fees.
3. Spousal Support: The court found that the parties enjoyed a middle- to upper-middle-class standard of living, citing the fact they lived in a $1 million home. The marriage was short term. The court found that Losse: (1) had the capacity to earn between $6,000 and $36,000 or more per month; (2) had the ability to pay spousal support; (3) "either concealed his income or affirmatively misrepresented his true income"; and (4) deprived Montano of the opportunity to receive spousal support at or before entry of status judgment in March 2006. The court ordered Losse to pay Montano spousal support for 30 months in the amount of $7,000 per month effective March 1, 2009.
4. Valuation and Division of Willow Cove: The court noted its serious reservations about the credibility of information provided by Losse regarding the value of the business. Nevertheless, it found that the marital value of Willow Cove was $144,800 as of the December 31, 2004 valuation date established by the court. The court ordered Losse to pay Montano an equalization payment of $72,400 in installments if he so elected.
5. Attorney Fees: The court ordered Losse to pay attorney fees and costs totaling $61,502.50, payable to Montano's counsel in installments, as sanctions arising from his breach of fiduciary duty.
I. Standard of Review
Appellate courts apply the abuse of discretion standard to the trial court's discretionary rulings on child support, spousal support, and attorney fees. (In re Marriage of Sullivan (1984) 37 Cal.3d 762, 767-769 [attorney fees]; In re Marriage of Morrison (1978) 20 Cal.3d 437, 454 [spousal support]; In re Marriage of Feldman (2007) 153 Cal.App.4th 1470, 1478 [monetary sanctions]; In re Marriage of Hinman (1997) 55 Cal.App.4th 988, 994 [child support].) "In exercising its discretion the trial court must follow established legal principles and base its findings on substantial evidence. If the trial court conforms to these requirements its order will be upheld whether or not the appellate court agrees with it or would make the same order if it were a trial court." (In re Marriage of Schmir (2005) 134 Cal.App.4th 43, 47, fn. omitted.) To the extent an appellant challenges the trial court's factual findings, review is limited to whether there is any substantial evidence, contradicted or uncontradicted, that supports the trial court's ruling. The reviewing court resolves conflicts in the evidence in favor of the prevailing party and draws all reasonable inferences to uphold the trial court's decision. (In re Marriage of Mix (1975) 14 Cal.3d 604, 614; Lammers v. Superior Court (2000) 83 Cal.App.4th 1309, 1317.)
Both parties would have us view the separate awards of child support, spousal support and attorney fees in isolation, rather than interrelated remedies based on the record as a whole. The record shows that the trial court took into consideration Losse's serious breach of fiduciary duty in fashioning its award of spousal support and attorney fees. The child support order was not unreasonable in light of the other orders included in the judgment. We therefore conclude there was no abuse of discretion.
II. Losse's Appeal
A. Spousal Support and Earning Capacity
Section 4320 lists 14 factors the trial court is required to consider in awarding spousal support. Important considerations include the standard of living established during the marriage and each party's needs or ability to pay, as well as "[a]ny other factors the court determines are just and equitable." (§§ 4320, subd. (n) & 4330, subd. (a).) Losse argues the court erred by basing his imputed earning capacity on his 2006 post-separation earnings, and ignoring the numerous other factors listed in section 4340. He maintains there is insufficient evidence to support the finding he had the capacity to earn between $6,000 and $36,000 per month or that his 2006 income was consistent with what he earned during the marriage. Losse asserts that "[t]he criterion is the supported spouse's needs, not [the] post separation standard of living of the supporting spouse."
"'In making its spousal support order, the trial court possesses broad discretion so as to fairly exercise the weighing process contemplated by section 4320, with the goal of accomplishing substantial justice for the parties in the case before it.' [Citation.] In balancing the applicable statutory factors, the trial court has discretion to determine the appropriate weight to accord to each. [Citation.] But the 'court may not be arbitrary; it must exercise its discretion along legal lines, taking into consideration the applicable circumstances of the parties set forth in [the statute], especially reasonable needs and their financial abilities.' [Citation.] Furthermore, the court does not have discretion to ignore any relevant circumstance enumerated in the statute. To the contrary, the trial judge must both recognize and apply each applicable statutory factor in setting spousal support. [Citations.] Failure to do so is reversible error. [Citations.]" (In re Marriage of Cheriton (2001) 92 Cal.App.4th 269, 304.) We conclude there was no abuse of discretion in the circumstances of this case.
Contrary to Losse's representations, the court did, in fact, make express findings on 13 of the 14 factors set forth in section 4320. It properly based Montano's current needs on the middle- to upper-middle class marital standard of living evidenced by the $1 million family home. The court also expressly found that Losse's affirmative misrepresentation of income deprived Montano of the opportunity to receive spousal support at an earlier date and stated: "A reasonable judicial officer would have been receptive to [Montano's] request and the March 9, 2006 Judgment would have looked much different than it did."
In light of Losse's consistent efforts to avoid discovery of his income and assets, and his filing of a "fabricated" 2006 W-2, we view as disingenuous his claim that there is insufficient evidence to support the court's finding as to earning capacity. The court was justified in rejecting Losse's testimony regarding income as untrustworthy. It nonetheless found that Losse was in good health and his "skills, training and experience [were] impressive." Without exception, Losse's income and expense declarations stated that he worked a minimum of 40 hours per week. This evidence, in addition to the un-fabricated 2006 W-2 form showing income of more than $435,000, is sufficient to sustain the court's finding on earning capacity.
B. Ability to Pay Spousal Support and Attorney Fees
Losse next contends that the court failed to find that he had the ability to pay $7,000 per month in spousal support and $1,300 per month in attorney fees. He notes that for purposes of calculating child support, the court attributed income of $4,438 per month to Montano and $6,000 per month to him. Losse argues he "cannot afford to pay $1,000 more than he makes" as spousal support. We conclude Losse waived the issue of ability to pay on appeal by failing to request a statement of decision.
Under well-established principles of review, we presume the judgment to be correct on appeal, and indulge all intendments and presumptions in favor of its correctness. (In re Marriage of Arceneaux (1990) 51 Cal.3d 1130, 1133 (Arceneaux).) A party may avoid the application of this presumption by requesting a statement of decision pursuant to section 4332 and Code of Civil Procedure sections 632 and 634. (Arceneaux, supra, 51 Cal.3d at p. 1133.) "When the court announces its tentative decision, a party may, under [Code of Civil Procedure] section 632, request the court to issue a statement of decision explaining the basis of its determination, and shall specify the issues on which the party is requesting the statement; following such a request, the party may make proposals relating to the contents of the statement. Thereafter, under [Code of Civil Procedure] section 634, the party must state any objection to the statement in order to avoid an implied finding on appeal in favor of the prevailing party. The section declares that if omissions or ambiguities in the statement are timely brought to the trial court's attention, the appellate court will not imply findings in favor of the prevailing party. The clear implication of this provision, of course, is that if a party does not bring such deficiencies to the trial court's attention, that party waives the right to claim on appeal that the statement was deficient in these regards, and hence the appellate court will imply findings to support the judgment." (Arceneaux, supra, 51 Cal.3d at pp. 1133-1134, fns. omitted.)
Losse did not request findings on his ability to pay spousal support or attorney fees. We therefore affirm the trial court's express finding that Losse had the ability to pay spousal support and the implied finding he had the ability to pay attorney fees. (Arceneaux, supra, 51 Cal.3d at p. 1133.) In any event, the record amply supports both awards as remedies for breach of fiduciary duty. Section 1101, subdivision (g) authorizes sanctions equal to 50 percent of any undisclosed asset and the spousal support award is equivalent to that amount. Moreover, the court tailored payment of the monthly installments of equalizing payments for Montano's interest in Willow Cove to follow completion of 30 months of spousal support.
III. Montano's Cross-appeal
A. Retroactive Child Support
Montano argues that the court abused its discretion in denying Montano's request for payment of child support arrearages from the date of the March 2006 status judgment. She contends that "[i]n its zeal not to punish [Losse] too much, the court did not really assess or consider the children's needs during the time period after March 2006" as required under section 4053 and the uniform child support guideline. She cited her own testimony that Losse did not contribute to payment of unreimbursed medical bills, copayment for doctors, purchase of school supplies or cost of swimming lessons. Montano was "very, very, very" upset by the discovery that the 2006 W-2 submitted by Losse was fraudulent, and he had earned $435,000 that year, because Losse had consistently refused to help with these child-related expenses.
The court's express findings support the child support award. The court attributed a range of earning capacity to Losse for purposes of spousal support, but used the lower amount of $6,000 monthly income for the purpose of calculating child support. The court acknowledged that Montano could have sought child support and spousal support at an earlier date had she known of Losse's misrepresentations, but elected to make all relief prospective, including punishment for breach of fiduciary duty. Given the fact that Losse and Montano shared custody on a 48 percent/52 percent basis respectively, and paid the children's health and dental insurance premiums of $336/$92 per month respectively, the award of $124 per month is not unreasonable - particularly in light of the $7,000 per month awarded in spousal support. We conclude there was no abuse of discretion.
B. Monetary Sanctions for Losse's Breach of Fiduciary Duty
Montano also contends the court erred in failing to order monetary sanctions against Losse pursuant to section 2107, subdivision (c) for purposes of deterring any future misconduct. There is no merit in this argument.
Section 2107 appears in the part of the Family Code which describes the parties' obligations regarding declarations of disclosure. (See, §§ 2100, 2104, 2105.) Within this context, section 2107, subdivision (c) provides: "If a party fails to comply with any provision of this chapter, the court shall, in addition to any other remedy provided by law, impose money sanctions against the non-complying party. Sanctions shall be in an amount sufficient to deter repetition of the conduct or comparable conduct, and shall include reasonable attorney's fees, costs incurred, or both, unless the court finds that the non-complying party acted with substantial justification or that other circumstances make the imposition of the sanction unjust." (Italics added.)
In this case, the court gave the parties notice and later imposed sanctions against Losse under sections 271 and 1101, subdivision (g) in the form of spousal support and attorney fees. The court expressly stated that Losse "shall pay attorney fees and costs as sanctions arising from his breach of fiduciary duty in the amount of $75,000." It found that Losse's breach of fiduciary duty was in the form of affirmative misrepresentations. It did not sanction Losse for failure to comply with the statutes relating to declarations of disclosure.
Section 271, subdivision (a) reads in part: "Notwithstanding any other provision of this code, the court may base an award of attorney's fees and costs on the extent to which the conduct of each party or attorney furthers or frustrates the policy of the law to promote settlement of litigation and, where possible, to reduce the cost of litigation by encouraging cooperation between the parties and attorneys. An award of attorney's fees and costs pursuant to this section is in the nature of a sanction." (Italics added.) Section 1101, subdivision (g) includes the following language: "Remedies for breach of the fiduciary duty by one spouse, including those set out in Sections 721 and 1100, shall include, but not be limited to, an award to the other spouse of 50 percent, or an amount equal to 50 percent, of any asset undisclosed or transferred in breach of the fiduciary duty plus attorney's fees and court costs."
Taken together, section 271, subdivision (a), and section 1101, subdivision (g) authorize sanctions in various forms, including awards equaling 50 percent of an undisclosed asset as well as attorney fees. Montano's counsel noted at trial that section 4320, subdivision (n) gave the trial court "pretty much latitude to make . . . right" the breach of fiduciary duty in through its spousal support order. She also acknowledged that the court's proposed spousal support order was better for her client than an award of 100 percent of the value of the business because it was not dischargeable. "It's always going to be there." Counsel also conceded that the sanctions in the form of spousal support were "very close to the kind of numbers [she] was looking at except it's structured in a different way."
Given this record, we conclude the court did not violate section 2701 or abuse its discretion in imposing sanctions in the form of spousal support and attorney fees.
The judgment is affirmed. Each party shall bear its own costs on appeal and cross-appeal. (Cal. Rules of Court, rule 8.278(a)(5).)
BENKE, Acting P. J.
I CONCUR IN THE RESULT: IRION, J.
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