Opinion
NOT TO BE PUBLISHED
Appeals from a judgment of the Superior Court of Orange County No. D331547, Derek W. Hunt, Judge.
Law Offices of Marjorie G. Fuller, Marjorie G. Fuller, J.E.T. Rutter, Shara Beral Witkin; and John R. Schilling for Appellant Antoinette V. Hipp.
Carl Fabian; Thomas F. Kamph & Associates and Thomas Ferber Kamph for Appellant Alfred C. Hipp.
OPINION
IKOLA, J.
Antoinette V. Hipp (Antoinette) appeals from a judgment entered after trial on reserved property issues in a dissolution action between her and Alfred C. Hipp (Alfred). First, she contends the court wrongly valued the community’s rental properties as of the date of trial. She claims the court should have used the date of separation as an alternative valuation date because her postseparation property management efforts increased the properties’ value. Second, she contends the court wrongly awarded her only a 10 percent fee for her postseparation property management efforts. Third, she contends the court wrongly imposed Watts charges against her for the rental value of the community home she resided in postseparation.
We use first names for clarity, intending no disrespect.
(In re Marriage of Watts (1985) 171 Cal.App.3d 366 (Watts).)
There is no error regarding these three contentions. Antoinette failed to show her personal skill and industry contributed significantly to the properties’ appreciation. The 10 percent management fee effectuates a reasonable “reverse Van Camp” calculation of her postseparation efforts. And the court reasonably imposed Watts charges, as substantial evidence supports its finding the spouses did not agree Antoinette could live in the house rent free.
(Van Camp v. Van Camp (1921) 53 Cal.App. 17 (Van Camp).)
Antoinette also contends the court wrongly appointed a receiver to sell the community real properties before judgment. After she filed her opening brief, we reversed the interim order appointing the receiver and ordering the sale. (In re Marriage of Hipp (Aug. 1, 2007, G036881 [nonpub. opn.].) The court reiterated its sale order in the judgment; we reverse this part of the judgment.
Finally, Alfred appeals. He contends the court erred by imposing only $15,000 in sanctions against Antoinette. We see no abuse of discretion. We therefore affirm the judgment in large measure, reversing only the part ordering the sale.
FACTS
The Hipps married in 1977. At the time, Antoinette owned three parcels of real property. She sold them during the marriage, and the Hipps proceeded to buy and sell numerous other properties. Ultimately, the Hipps would own the family home and six 4-unit rental properties.
The Hipps separated in 1991. They began an informal arrangement (which the court termed a “modus vivendi”) whereby Antoinette raised the couple’s two children in the family home and managed the rental properties, while retaining all rental proceeds. She oversaw day-to-day maintenance of the properties, collected rent, refinanced various properties, and bought and sold various properties. On the other hand, her record-keeping left much to be desired. She owned approximately 50 bank accounts and deposited rental proceeds into whichever account she thought “‘need[ed] it.’” The deposits appeared “random” and her records were “inconsistent,” according to an accountant. She kept rental logs the court later described as “dubious” due to “discrepancies (alterations)” between the originals and photocopies offered into evidence. The rental logs did “not really provide any value” to a forensic analysis of the properties’ rental income, according to the accountant.
The court entered a judgment of dissolution terminating the marriage in 2002. It reserved jurisdiction over property issues, the primary issue being whether the seven real properties were Antoinette’s separate property or community property.
The court began trying the property issues in 2005. As it noted in its statement of decision, each party “proceeded to make its evidentiary case based on distant personal recollections, the efforts of experts, and the spotty (though voluminous) documentation presented to the Court.” Antoinette offered a “faltering performance” on the stand and showed a “ready willingness to say under oath whatever seemed congenial to her position at the time.” Her “testimony was a farrago of speculation, inconsistencies, and amended answers. Her documentary evidence — and much of [Alfred’s] as well —were largely photocopies, several of them illegible, and frequently no more than a sampling from a larger document.” Antoinette finally began producing some original documents, which “began arriving by the score, culminating in testimony [by her] that changed from day to day supported by the ostensibly corroborating documents sometimes offered several days later.”
Antoinette’s “kaleidoscopic,” “ad hoc,” and “dubious” testimony led the court to continue trial and appoint a referee. The referee was charged with investigating several factual matters, including identifying documents to support Antoinette’s testimony. Antoinette was uncooperative with the referee. Nonetheless, the referee was able to interview her and Alfred, investigate documentary evidence, and prepare a report for the court. The court received the report into evidence. Still, “during the resumed trial . . . dubious documents (such as [Antoinette’s] rental logs) continued to appear even after the referee had supposedly completed his mission.”
At the end of trial, the court faced a conundrum concerning Antoinette’s management efforts. She was the only spouse to contribute any time or effort to managing the rental properties, but the extent and value of her efforts was unclear. The court re-opened the evidence to allow Antoinette to present additional evidence of the value of her management efforts. Antoinette offered only what the court called the “meager testimony” of herself and an expert witness. Antoinette testified she performed all basic maintenance, to which Alfred stipulated. Her expert testified about the general skills of property management, but “did not point to any specific act taken by [Antoinette] which could be regarded as exemplary of any special value which she may have added to the estate. He was specially unable to quantify the value of anything that [Antoinette] had done, stating that it was outside his expertise.”
After trial, the court found the seven properties were community property untraceable to any of Antoinette’s separate property. It determined the properties would be valued as of the date of trial, not the date of separation. It compensated Antoinette for her management efforts while honoring the parties’ modus vivendi by awarding her 10 percent of the rental receipts as a management fee, starting when the youngest child left home for college in 1999. The court also assessed Watts charges against Antoinette for the reasonable rental value of the family home, starting in 1999. Finally, it imposed sanctions of $15,000 against Antoinette for her lack of cooperation with the referee and the court.
The parties accuse each other of inadequate briefing and unethical advocacy. None of the alleged violations merit comment. We deny all motions to strike and reach all properly raised issues.
The Court Permissibly Valued the Properties as of the Date of Trial
The Family Code directs the court to “value the [community’s] assets and liabilities as near as practicable to the time of trial.” (Fam. Code, § 2552.) Exceptions to the general rule may arise in situations “such as ‘when the hard work and actions of one spouse alone and after separation . . . greatly increases the “community” estate which must then be divided with the other spouse.’” (In re Marriage of Duncan (2001) 90 Cal.App.4th 617, 625 (Duncan).) The Family Code provides, “upon 30 days’ notice by the moving party to the other party, the court for good cause shown may value all or any portion of the assets and liabilities at a date after separation and before trial to accomplish an equal division of the community estate of the parties in an equitable manner.” (§ 2552, subd. (b).)
All further statutory references are to the Family Code.
Courts value community property as of the date of trial when an increase in value is due to asset appreciation. (Duncan, supra, 90 Cal.App.4th at pp. 625-626 [general rule applies when business’s value “‘is primarily a reflection of . . . capital assets’” or “‘devolves largely from . . .’ the business’s capital assets”].) The general rule accounts for “the inherent growth factor found in many assets, investment, and re-investment of capital, market fluctuations, and numerous other components that can increase the value of most assets.” (In re Marriage of Imperato (1975) 45 Cal.App.3d 432, 437 (Imperato).) “[W]hen an asset increases in value from nonpersonal factors such as inflation or market fluctuations, generally it is fair that both parties share in that increased value.” (In re Marriage of Priddis (1982) 132 Cal.App.3d 349, 355 (Priddis).)
In Priddis, the court valued the community home at the time of trial. (Priddis, supra, 132 Cal.App.3d at p. 358.) It noted, “There is no evidence that the increase in value of the home resulted from anything other than inflation or market fluctuation.” (Id. at p. 356.) It concluded, “When the value of community assets has been affected by inflation or other market factors, the fairest equal division of those assets lets the parties share equally in either gains or losses.” (Id. at pp. 357-358.)
Courts apply the exception and value community property at the date of separation when an increase in value is due to a spouse’s personal skill in the operation of an on-going business. “The good cause exception to trial date valuation typically applies to professional practices as well as small personal service businesses which rely on the skill and reputation of the spouse who operates them.” (In re Marriage of Geraci (2006) 144 Cal.App.4th 1278, 1291 (Geraci) [real estate agency].) “‘This exception to trial date valuation applies because the value of such businesses, “including goodwill, is primarily a reflection of the practitioner’s services (accounts receivable and work in progress) and not capital assets such as desks, chairs, law books and computers.”’” (Ibid.) “Thus, an alternative valuation date may apply to a business when its value ‘devolves largely from the personal skill, industry and guidance of the operating spouse,’ rather than the business’s capital assets.” (Duncan, supra, 90 Cal.App.4th at p. 626 [investment advising]; see also In re Marriage of Green (1989) 213 Cal.App.3d 14, 21 [law partnership valued at date of separation].)
The party seeking an alternative valuation date bears the burden of showing good cause for the change. (§ 2552, subd. (b).) The court has “considerable discretion” in setting the valuation date. (Duncan, supra, 90 Cal.App.4th at p. 625.) “Where, as here, the trial court is vested with discretionary powers, we review its ruling for an abuse of discretion. [Citation.] As long as the court exercised its discretion along legal lines, its decision will be affirmed on appeal if there is substantial evidence to support it. [Citation.] Further, because the reasons for change in value of an asset are ordinarily factual, our role is limited to determining whether there is sufficient evidence to conclude the trial court’s decision was within the permissible range of options set by the legal criteria.” (Ibid.)
Here, the court permissibly adopted the general rule and valued the community real properties as of the date of trial. The properties are capital assets. (See Duncan, supra, 90 Cal.App.4th at pp. 625-626 [general rule applies when business’s value “‘is primarily a reflection of . . . capital assets’” or “‘devolves largely from . . . the business’s capital assets’”].) Thus, their appreciation is largely attributable to their “inherent growth factor” (Imperato, supra, 45 Cal.App.3d at p. 437) and “nonpersonal factors such as inflation or market fluctuations.” (Priddis, supra, 132 Cal.App.3d at p. 355.) Antoinette acknowledges as much in her appellate briefs. She notes, at the time of separation in 1991, “the Southern California real estate market was becoming depressed, and the properties [were] decreasing in value.” Although “the California real estate recession continued through the mid-1990s,” she continues, “the real estate market began to turn around” after 1995. She reluctantly understates, “some of the increase in the value of the properties may be attributable to a generally rising real estate market,” before conceding, “the increase in the value of [the] real property was largely due to the overall rising real estate market.” This is a case like Priddis, where there was “no evidence that the increase in value of the home resulted from anything other than inflation or market fluctuation.” (Priddis, supra, 132 Cal.App.3d at p. 356.)
Antoinette failed meet her burden of showing the properties increased in value due to her “skill and reputation” (Geraci, supra, 144 Cal.App.4th at p. 1291) or “‘personal skill, industry and guidance . . . .’” (Duncan, supra, 90 Cal.App.4th at p. 626.) The community property at issue comprises parcels of real estate, not “professional practices” or “small personal service businesses . . . .” (Geraci at p. 1291.) The rental properties here stand in poor contrast with the real estate agency in Geraci, where “[t]he evidence was undisputed all income generated by [the agency] was based on [the husband’s] personal skill, efforts, and industry in marketing and selling residences” and “[t]here was no evidence [the agency] had any ‘capital’ assets to speak of beyond a fax machine and telephone line.” (Ibid.) The rental properties also do not compare favorably to the investment advisory business in Duncan, which included all the attributes of a professional practice: “(1) performing services for a fee, (2) offering specialized knowledge and experience, (3) being licensed and regulated and (4) having assets that consist largely of office equipment, accounts receivable and work in progress. [The business’s] value and success depend almost exclusively on [the husband’s] skill, industry, guidance and reputation.” (Duncan, at p. 626.)
Antoinette weakly contends otherwise, claiming she “saved” the rental properties by allowing other community properties to fall into foreclosure in the early 1990’s recession. Even so, she failed to show these mortgage defaults or her ordinary property management led to the increase in the rental properties value, rather than the conceded rise in the Southern California real estate market during the late 1990’s and early 2000’s. Even when the court re-opened the evidence to allow Antoinette to show the value of her property management efforts, her own expert could not “point to any specific act taken by [her] which could be regarded as exemplary of any special value which she may have added to the estate” and “was specially unable to quantify the value of anything that [she] had done.” The court did not abuse its discretion by valuing the properties as of the date of trial, as is the general rule.
The Management Fee Adequately Accounts for Antoinette’s Postseparation Efforts
Although the court valued the rental properties as of the date of trial, it accounted for Antoinette’s postseparation property management efforts by awarding her a 10 percent management fee. It started calculating the fee as of 1999, finding the parties had a modus vivendi until then whereby Antoinette managed the properties but retained all rental proceeds. Antoinette raises no challenge to the court’s selection of 10 percent as the appropriate fee; she does not contend she was entitled to some specific, larger percentage. Rather, she contends awarding a management fee at all fails to equitably apportion her postseparation efforts between community and separate property. This claim overlaps with her previous claim — the court wrongly awarded a management fee, in her view, because it should have credited her postseparation efforts by valuing the properties as of the date of separation. We may therefore reject her management fee claim for the same reason we rejected her valuation claim.
Antoinette asserts an alternate challenge to the management fee by mistakenly claiming the court failed to use an appropriate methodology to account for her postseparation efforts. She insists the court at least should have used the “reverse Pereira” or “reverse Van Camp” formula. The reverse Pereira formula “allocate[s] a fair return of the increase [in the value of community property due to a spouse’s postseparation efforts] to the community property and the excess would be [the spouse’s] separate property.” (Imperato, supra, 45 Cal.App.3d at p. 439.) The reverse Van Camp formula “determine[s] the reasonable value of [the spouse’s postseparation] services (less the draws or salary taken) and allocate[s] this additional sum, if any, to [the spouse] as his [or her] separate property and the balance of the increase to community property.” (Ibid.)
(Pereira v. Pereira (1909) 156 Cal. 1 (Pereira).)
The court essentially performed a reverse Van Camp calculation here. It awarded Antoinette a 10 percent management fee as the reasonable value of her postseparation efforts, and allocated the remaining value of the rental properties to the community. The court has discretion to “apply the theory that is deemed most appropriate,” and we see no abuse in its choice of the reverse Van Camp formula. (Imperato, supra, 45 Cal.App.3d at p. 439.)
Antoinette also wrongly claims the court erred by starting the management fee calculation in 1999. She concedes it found an “implicit agreement” (her term) for her to manage the properties and retain all rental proceeds between 1991 and 1999. Antoinette does not contest this finding. She instead asserts the implicit agreement is unfair because the rental properties generated no income between 1991 and 1999, and so she received nothing under the agreement. Her challenge falls flat. “The adequacy of consideration is tested as of the time of the making of the contract, [citation] and the courts do not weigh the quantum of the consideration as long as it has some value.” (A.J. Industries, Inc. v. Ver Halen (1977) 75 Cal.App.3d 751, 761.) Antoinette’s right to retain rental proceeds had value, regardless of the proceeds’ final amount, and sufficiently supports the implicit agreement.
The Court Properly Imposed Watts Charges Against Antoinette
Antoinette claims the court erred by imposing Watts charges against her, starting in 1999, for the reasonable rental value of the community home in which she resided. (See Watts, supra, 171 Cal.App.3d at p. 374 [court may order spouse to reimburse community for exclusive, postseparation use of community asset].) She contends she and Alfred had an oral agreement whereby he would quitclaim the family home to her in exchange for her quitclaiming any interest in a property Alfred had bought postseparation. She further contends Alfred should be equitably estopped from seeking Watts charges because he let her live in the house postseparation without charging her rent.
Antoinette failed to preserve this issue on appeal. The court ordered a referee to determine the appropriate amount of Watts charges. The order directed the referee to “calculate and report to the court the monthly fair market rental value of the [family home] from the date the youngest Hipp child either left the house for college or achieved his majority. . . .” The court later held a hearing to (1) re-open the evidence to let Antoinette show the value of her management efforts, and (2) hear Alfred’s application for sanctions against Antoinette. Antoinette’s counsel asked the court whether it would “conduct a hearing today on [the referee’s] report,” stating, “my suggestion is that [the referee], with all due respect, misapplied the Watts . . . .” The court informed counsel it would not hear oral argument on the referee’s report at that time, and invited counsel to file a written motion challenging the Watts charges.
Antoinette points to no objection to the court’s imposition of Watts charges, either before or after the referee made its determination. Nothing in the record suggests Antoinette ever followed up on the court’s comment by filing a motion challenging the Watts charges. “‘[A]s a general rule issues not raised in the trial court cannot be raised for the first time on appeal.’” (Jones v. Wagner (2001) 90 Cal.App.4th 466, 481 (Jones).) “[I]t is unfair to the trial judge and to the adverse party to take advantage of an error on appeal where it could easily have been corrected at trial.” (9 Witkin, Cal. Procedure (4th ed. 1997) Appeal, § 394, p. 445, italics added.) Antoinette has not preserved the imposition of Watts charges for appeal, having failed to raise the issue below.
The same result awaits Antoinette’s claim the court erred by failing to offset the Watts charges by awarding her Epstein credits. (In re Marriage of Epstein (1979) 24 Cal.3d 76, 84-85 [court may order community to reimburse spouse who used separate property to pay preexisting community obligation].) She points to nothing in the record suggesting she ever sought Epstein credits below.
Moreover, the court found the alleged agreement underlying Antoinette’s claim did not exist. It noted in its statement of decision, “[t]o the extent that Mrs. Hipp argued at trial that Mr. Hipp breached an agreement to quitclaim the family home . . . to her, the Court finds that not proven.” Antoinette offers no basis for rejecting this finding, other than to insist the court should have credited her testimony regarding the agreement — an audacious claim for someone whose testimony the court generally found to be “kaleidoscopic,” “ad hoc,” “dubious,” “confusing,” and “a farrago of speculation, inconsistencies, and amended answers.” “We have no power on appeal to . . . consider the credibility of witnesses” and cannot rely upon Antoinette’s self-proclaimed credibility to reject the court’s findings. (Navarro v. Perron (2004) 122 Cal.App.4th 797, 803.)
The Court Wrongly Appointed the Receiver and Ordered the Sale
The court issued an interim order appointing a receiver and ordering the receiver to “take operating possession” of the rental properties and sell them. The court found the sale was required to divide the community property, even though each party wanted the court to divide the rental properties between them. Antoinette appealed this order before the court entered judgment, and we reversed the order. (In re Marriage of Hipp, supra, G036881.)
We held the court abused its discretion by ordering the sale. It wrongly “reject[ed] the method of community property division that both parties wanted” — allocation of the properties between them — and acted arbitrarily by choosing “an especially onerous method for dividing the community property” that needlessly exposed the community to tax liability. (In re Marriage of Hipp, supra,G036881.) We directed the court to discharge the receiver and allocate the rental properties between Alfred and Antoinette to the greatest possible extent. (Ibid.)
The court reiterated its since-reversed interim order in the final judgment entered in this case. Antoinette again challenges it, and we see no reason to abandon course. This part of the judgment is reversed.
Imposing Only $15,000 Sanctions Against Antoinette Was Not an Abuse of Discretion
The court found Antoinette failed to cooperate with the referee or the court, and imposed sanctions of $15,000. (§ 271.) It singled out her “kaleidoscopic testimony,” production of “dubious documents,” and “disruption of the trial [and her] troublesome attitude . . . throughout that phase.” Antoinette, conceding her wrongdoing, does not appeal from the sanctions award.
Section 271, subdivision (a), provides 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. In making an award pursuant to this section, the court shall take into consideration all evidence concerning the parties’ incomes, assets, and liabilities. The court shall not impose a sanction pursuant to this section that imposes an unreasonable financial burden on the party against whom the sanction is imposed.”
But Alfred does. He seeks sanctions exceeding $1.5 million, covering his attorney fees and costs, the receiver’s fees and costs, and a punitive award of $1 million. He observes courts have imposed six-figure sanctions awards for similar misconduct. (In re Marriage of Feldman (2007) 153 Cal.App.4th 1470, 1482-1483 (Feldman) [$250,000 in sanctions]; In re Marriage of Quay (1993) 18 Cal.App.4th 961, 970-971 [$100,000].) Alfred contends the court wrongly limited the amount of sanctions due to insufficient evidence of Antoinette’s ability to pay a greater amount. He notes the evidence showed Antoinette would receive at least $2.5 million, or perhaps as much as $3.3 million, as her distribution of community property.
One problem with Alfred’s claim is the court did account for Antoinette’s community property distribution, at least partly. It stated it had “evidence from the main trial and the arguments of counsel that the properties [were] worth in excess of a million dollars and possibly more and the probability that [Antoinette] will share in roughly half of the proceeds,” and based the sanctions amount in part on “[Antoinette’s] probable recovery following the referee’s sale of the properties.”
The more basic problem is the court did not abuse its broad discretion to determine sanction amounts. “‘A sanction order under . . . section 271 is reviewed under the abuse of discretion standard. “‘[T]he trial court’s order will be overturned only if, considering all the evidence viewed most favorably in support of its order, no judge could reasonably make the order.’”’ [Citation.] ‘In reviewing such an award, we must indulge all reasonable inferences to uphold the court’s order.’” (Feldman, supra, 153 Cal.App.4th at p. 1478.) Section 271 “does not require that the sanction imposed compensate for all fees and costs expended” (In re Marriage of Battenburg (1994) 28 Cal.App.4th 1338, 1346), let alone tack on an extra $1 million. A reasonable judge could have awarded sanctions in an amount less than what Alfred sought; we imagine most would. Sanctions of only $15,000 may have been merciful, given Antoinette’s intransigence, but that is a commendable judicial trait. The sanction amount was not arbitrary, capricious, or unreasonable.
DISPOSITION
The judgment is reversed and the matter is remanded to the trial court with directions to determine the value of the yet to be valued community real estate and divide the community estate accordingly. All other findings are affirmed. Alfred shall recover his costs on appeal.
WE CONCUR: SILLS, P. J., O’LEARY, J.