Opinion
G053409
05-30-2017
In re Marriage of CHRISTINE and DANIEL HSU. CHRISTINE NAKAMOTO, Appellant, v. DANIEL HSU, Respondent; BRION CORPORATION et al., Respondents.
Feinberg, Mindel, Brandt & Klein, Robert C. Brandt and Gregory A. Girvan; Ribet & Silver and Claudia Ribet for Appellant Christine Nakamoto. Masson & Fatini and Jamie L. Wilson for Respondent Daniel Hsu. Reid & Hellyer and James J. Manning, Jr., and Alexander C. Payne for Respondents Brion Corporation et al.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (Super. Ct. No. 11D006853) OPINION Appeal from a judgment of the Superior Court of Orange County, Mark Millard, Judge. Reversed and remanded. Feinberg, Mindel, Brandt & Klein, Robert C. Brandt and Gregory A. Girvan; Ribet & Silver and Claudia Ribet for Appellant Christine Nakamoto. Masson & Fatini and Jamie L. Wilson for Respondent Daniel Hsu. Reid & Hellyer and James J. Manning, Jr., and Alexander C. Payne for Respondents Brion Corporation et al.
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Appellant Christine Nakamoto (Christine) filed a petition for dissolution of marriage against respondent Daniel Hsu (Daniel). In the dissolution proceeding, Christine joined respondents Brion Corporation, STPCA, Sun Ten Museum, Inc., Melissa See Hsu (Melissa), and Charleson Hsu (Charleson) (collectively referred to as claimants). Melissa and Charleson are Daniel's siblings and the joined corporations were started by the Hsu family.
We refer to the parties by their first names for the ease of the reader. No disrespect is intended. (In re Marriage of Smith (1990) 225 Cal.App.3d 469, 475-476, fn. 1.)
Daniel joined in Christine's opening brief on appeal and made no appearance at oral argument.
Claimants filed a motion for a separate trial on the validity of a transmutation agreement. Christine and Daniel contended at trial that a note from Daniel to Christine written the day after their wedding (the wedding note or the transmutation agreement) constituted a transmutation of his separate property to the community. The family court determined there was a valid transmutation from Daniel's separate property to Christine's separate property. Claimants filed a motion for judgment on the pleadings, claiming the community did not have an interest in claimants or their assets because Daniel transmuted his property rights to Christine as her separate property. The court granted claimants' motion for judgment on the pleadings and entered their dismissal.
In order to understand the relevance of the wedding note and its property characterization, it is helpful to review some of the underlying contentions regarding the purported motivation for this appeal. Christine contends the family court's decision that the wedding note transmuted Daniel's separate property to Christine's separate property means the civil court presiding over the related action in Brion Corp. v. Hsu (Super. Ct. Orange County, No. 30-2013-00632435-CU-BC-CJC) will not consider whether Daniel's inheritance is community, thereby depriving her of property promised to her by Daniel. Claimants argue Christine's desired transmutation to community property would not affect her interest, as she would be entitled to either half of Daniel's separate property or half of the community property, which is comprised of 100 percent of Daniel's separate property. Claimants allege the true purpose for Christine's desired separate to community finding is to avail herself of the costs shifting and attorney fees statutes under the Family Code because the family court lacks jurisdiction over spouses' separate property. Claimants further claim Christine and Daniel seek to set aside completed probates and contracts that are barred by statute of limitations and procedural issues in civil or probate court, but would not necessarily be prohibited in a family court that sits in equity. (In re Marriage of Schu (2014) 231 Cal.App.4th 394, 401.)
Christine appeals, claiming the family court improperly considered extrinsic evidence to bolster its interpretation of the transmutation agreement. We conclude the trial court erred by admitting extrinsic evidence to construe the transmutation agreement, reverse the judgment, and remand to the court for an order holding that the transmutation at issue was from Daniel's separate property to the community.
I
FACTUAL AND PROCEDURAL BACKGROUND
Christine and Daniel separated on June 2, 2011 and Christine filed a petition for dissolution of marriage against Daniel on July 21, 2011. Her petition requested confirmation as to her separate property "pursuant to title and the Memorialization of Facts and Promises entered into with [Daniel]" of her ownership interest in the estates of his parents, among other things. The memorialization of facts and promises (the memorialization) stated that Christine would receive 50 percent of Daniel's separate property inheritance from his parents' estate.
Christine moved to join claimants, alleging the community possessed an ownership interest in the claimant corporations and Melissa and Charleson had direct and indirect ownership interests in Brion Corporation and STPCA. The family court granted the joinder requests.
Prior to the dissolution, Daniel had executed a "Compromise Agreement for Structured Settlement and Release" (the settlement agreement) with Melissa and Charleson. The settlement agreement purported to release Daniel from claims in his parents' estates, thereby depriving Christine of any estate proceeds. In reviewing discovery responses, claimants learned that Daniel and Christine alleged the settlement agreement was unenforceable and asserted a community property interest in claimants. In 2013, Charleson and Melissa filed a separate civil action for adjudication of their rights under the settlement agreement. The settlement agreement was entered into evidence, over an extrinsic evidence objection, at the transmutation trial. The civil action remains pending in Orange County Superior Court as Brion Corp. v. Hsu, supra. Claimants sought to consolidate the family law proceedings with the civil action, but were unsuccessful.
Christine's statement of facts includes a lengthy recitation of Daniel's family history and a purported feud between the siblings regarding their parents' estate. Because these additional facts are not directly at issue on appeal, we decline to include them.
Claimants filed a motion for a separate trial on the validity the transmutation agreement. Christine and Daniel contended at trial that the transmutation agreement, a March 23, 2002 note from Daniel to Christine written the day after their wedding, constituted a transmutation of his separate property to the community. The wedding note stated: "Now the wedding is over I wish you to read this. I have been blessed with good fortune from my parents who obey the God's will and have given their children the chance for healthy and prosperous life. As expression of my affection to you as my wife I give you and share with you equally everything I owned now and all the possessions my parents have give to me once my portion is settle. This is my pledge to you. I look forward to a wonderful life together." Claimants did not object to the introduction of the wedding note at trial. The family court properly sustained extrinsic evidence objections during Christine and Daniel's case-in-chief.
Claimants argue the wedding note was not produced until two years after Christine filed her petition for dissolution, even though they propounded discovery requests seeking evidence of transmutation. Claimants contend the wedding note was manufactured, but offer no citation to the record to support their contention. Claimants failed to allege the wedding note was wrongly admitted into evidence. Without a specific claim of error, we are unable to consider whether the wedding note was admitted in error.
In claimants' case-in-chief, over extrinsic evidence objections by both Christine and Daniel, the family court admitted the memorialization into evidence. The memorialization was drafted on June 25, 2011, almost a month after the parties separated and more than nine years after Daniel drafted the wedding note. Daniel and Christine contended the memorialization was extrinsic evidence that could not be considered to construe the wedding note. They argued the memorialization merely reaffirmed Daniel's promise in the wedding note to give Christine 50 percent of Daniel's separate property inheritance from his parents' estate.
In stating his objection to admission of the memorialization at trial, Daniel testified the wedding note was consistent with the memorialization. Daniel stated his "understanding is our community property and everything I own will become a community property [pursuant to the wedding note], but once we separate or once we divorce, that would become her separate property." Christine also testified that the memorialization's statement that she could "'treat all portions of the 50 percent ownership'" as her separate property was that once the parties divorced, her one-half of the community property given to her in the wedding note could become separate property. Claimants contended the memorialization was admissible for rebuttal purposes and argued that while "no extrinsic evidence can augment that [transmutation] document" and the family court "has to look at the four corners, . . . extrinsic evidence can be used to contradict it, your honor, to undermine it, to impeach it."
After trial, the family court determined the wedding note was a valid transmutation from Daniel's separate property to Christine's separate property. In its statement of decision, the court relied on the memorialization as demonstrating that the wedding note altered the character of Daniel's separate property to Christine's separate property. In the December 31, 2014 minute order referenced by the statement of decision, the court determined the wedding note used the word "you" rather than "us" in the phrase "I give you and share with you equally everything I owned now[.]" This phrase supported the court's conclusion that the wedding note was a transmutation from Daniel's separate property to Christine's separate property. The court opined if Daniel had sought to transmute from his separate property to community property, he would have used the word "community" or "us" and not "you." The court also determined that "[s]ince [Christine] based her claim and her joinder of the claimants on the validity of a transmutation of [Daniel's] separate property rights to her the Court finds the Claimants could attack the validity of the agreement."
Christine filed objections to the statement of decision based on the family court's reliance on extrinsic evidence, the interpretation of the plain wording of the wedding note, and claimants' standing to challenge the wedding note. The court overruled Christine's objections. Christine sought an immediate appeal from the court's decision that was denied.
Claimants filed a motion for judgment on the pleadings based upon the family court's determination that the community did not have an interest in claimants or their assets because Daniel transmuted his property rights to Christine as her separate property. The court granted claimants' motion for judgment on the pleadings and entered their dismissal from the dissolution action. The court reserved jurisdiction to "'re-take' the matter if community property is found to be held by the joined parties in the civil court matter." In its order, the court incorporated by reference its statement of decision and December 31, 2014 minute order on the transmutation trial.
II
DISCUSSION
A motion for judgment on the pleadings tests the sufficiency of plaintiff's complaint to state a cause of action. (Code Civ. Proc., § 438, subd. (c)(1)(B); Ellerbee v. County of Los Angeles (2010) 187 Cal.App.4th 1206, 1213.) Our review assumes the truth of all properly pleaded factual allegations in the complaint, excluding contentions, deductions or conclusions of fact or law, and gives them a liberal construction. (Gerawan Farming, Inc. v. Lyons (2000) 24 Cal.4th 468, 515-516.) We may also consider evidence outside the pleadings that was considered by the family court without objection. (O'Neil v. General Security Corp. (1992) 4 Cal.App.4th 587, 594, fn. 1.) "In deciding whether a transmutation has occurred, we interpret the written instruments independently, without resort to extrinsic evidence. [Citations.] Under the circumstances, we are not bound by the interpretation given to the written instruments by the trial court. [Citation.]" (In re Marriage of Starkman (2005) 129 Cal.App.4th 659, 664 (Starkman); In re Marriage of Lafkas (2015) 237 Cal.App.4th 921, 932.)
Christine challenges the family court's order granting claimants' motion for judgment on the pleadings by arguing the court incorrectly determined claimants had authority to challenge the wedding note and allowed claimants to introduce extrinsic evidence to rebut the meaning of the wedding note. We determine even if claimants had proper standing to challenge the wedding note, the court improperly admitted and relied upon extrinsic evidence in determining the wedding note constituted a valid transmutation of Daniel's separate property to Christine's separate property. Even If Claimants Lacked Standing, Any Error Was Harmless
Christine first challenges claimants' standing to challenge the wedding note as third parties. As a procedural matter, when considering an appeal of a motion for judgment on the pleadings, we assume the truth of all properly pleaded factual allegations in the complaint. The family court determined "[c]laimants were joined on the basis of [Christine's] claim that [c]laimants held property belonging to her as a result of the transmutation and [c]laimants do have standing to contest the transmutation." Claimants contend they have standing to contest the wedding note as creditors, and point to their civil action as evidence of their status as creditors. We are bound to assume the truth of the factual allegations in the complaints against claimants, and because claimants are not alleged to be creditors of Christine or Daniel, we must conclude they lacked standing to challenge the wedding note. That does not mean the court could not determine whether the transmutation agreement was valid.
We express no opinion as to whether claimants were creditors having rights to avoid property transfers under the Uniform Voidable Transactions Act or the Family Code.
We reject Christine's argument that the former couple's agreed-upon understanding of the meaning of the transmutation agreement controls. Extrinsic evidence is excluded from interpreting a transmutation agreement. Even if claimants lacked standing to challenge the transmutation agreement, the family court needed to interpret the wedding note regardless of claimants' participation to determine the character of marital property. Because claimants' challenge to the transmutation agreement was harmless error, we next turn to whether the court improperly admitted extrinsic evidence to interpret the wedding note.
The Family Court Improperly Relied Upon Extrinsic Evidence to Interpret Wedding Note
Christine argues the family court improperly allowed claimants to introduce extrinsic evidence to rebut the validity of the wedding note. She claims the court erred by admitting the memorialization into evidence and then relied on it to interpret the wedding note, referencing in its order "a document, written by [Christine] and signed by [Daniel] after separation, [in which] the property rights are referred to as separate and consistent with the Courts interpretation referred to as separate property."
Under Family Code section 850, subdivisions (b)-(c), spouses can contract to transmute separate property of one spouse to either the separate property of the other spouse or the community property of both spouses. Section 852, subdivision (a), imposes certain requirements on transmutation agreements. It states that a transmutation "is not valid unless made in writing by an express declaration that is made, joined in, consented to, or accepted by the spouse whose interest in the property is adversely affected." (§ 852, subd. (a).) Transmutations of real property are not effective as to third parties without notice unless recorded. (§ 852, subd. (b).) "In deciding whether a transmutation has occurred, we interpret the written instruments independently, without resort to extrinsic evidence. [Citations.]" (Starkman, supra, 129 Cal.App.4th at p. 664.)
All further statutory references are to the Family Code unless otherwise indicated.
Starkman relied on Estate of MacDonald (1990) 51 Cal.3d 262 (MacDonald) for the principle that extrinsic evidence is not admissible in transmutation cases. (Starkman, supra, 129 Cal.App.4th at p. 664.) In MacDonald, the California Supreme Court determined former Civil Code section 5110.730, subdivision (a), required courts to construe transmutation agreements "without resort to extrinsic evidence." (MacDonald, supra, 51 Cal.3d at p. 272.) Section 852 continues former Civil Code section 5110.730 without change. (Cal. Law Revision Com. com., West's Ann. Fam. Code (2017 ed.) foll. § 852.) --------
A valid transmutation agreement does not require magic words and need not "use the term 'transmutation' or any other particular locution." Nor need "a writing sufficient to satisfy the 'express declaration' requirement" contain the words "'community property' or 'separate property.'" (MacDonald, supra, 51 Cal.3d at p. 273.) "The MacDonald test is not difficult to meet: It requires only a clear demonstration of a change in ownership or characterization of the property at issue." (In re Marriage of Barneson (1999), 69 Cal.App.4th 583, 593 (Barneson).)
Claimants contend the family court's statement of decision on the transmutation trial specifically provided the court relied only upon the language of the wedding note, "[i]t appears to this Court that the writing, by language, conveys separate property of [Daniel] to a separate property interest to [Christine] of 1/2 of what [Daniel] owned. That is this Court's reading of the writing." Claimants also argue In re Marriage of Lund (2009) 174 Cal.App.4th 40, 52 (Lund), is distinguishable because the Lund court reversed the court's interpretation of a transmutation agreement where it was read in "conjunction" with a related trust instrument. Claimants argue, without citation to authority, where a court interprets a transmutation agreement "and then notes if it comports with other agreements" is unlike reading documents in conjunction with one another. We are not persuaded the court's statements regarding the memorialization were merely dicta and are guided by authority cautioning against admitting and utilizing extrinsic evidence, in any way, to interpret a transmutation agreement.
In Lund, this court reversed the family court's finding that husband did not transmute his separate property to community property, determining the transmutation agreement unambiguously indicated a transmutation of all of husband's separate property into community property. (Lund, supra, 174 Cal.App.4th at pp. 54-55.) The Court of Appeal determined the court was influenced in its interpretation of the transmutation agreement by the existence of other estate planning documents, which were executed along with the transmutation agreement as part of a single estate planning strategy. (Id. at p. 52.) The Court of Appeal considered the other documents irrelevant, extrinsic evidence. (Ibid.)
Similarly, here, while the family court only refers to the language of the wedding note in the four concluding paragraphs of its statement of decision, the court's statements in the minute order incorporated by reference, as well as throughout the record, indicate the court's understanding and interpretation of the wedding note was informed by extrinsic evidence. Indeed, before admitting the memorialization into evidence, the court determined that it was "not extrinsic evidence because they're using it for rebuttal purposes." The minute order stated the memorialization confirmed the intention of Christine and Daniel to a separate property to separate property transmutation and that the memorialization "conflicts, and is inconsistent with the claimed transmutation document received in evidence during trial." In the same vein, the court also ruled a settlement agreement between Daniel and his siblings was relevant to show there was no transmutation to the community and the court relied on Christine's petition for dissolution for purposes of determining whether there was a transmutation to the community. All of these references were impermissible extrinsic evidence and the court's consideration of this evidence was error as a matter of law.
The key sentence from the wedding note is "I give you and share with you equally everything I owned now." The family court opined Daniel could have used the word "us" instead of "you" if he wanted to transmute his separate property to community property. Such a writing, however, would have produce an awkward sentence, "I give [us] and share with you." It further emphasized the use of the word "give" and failed to give "share" its normal meaning. The fact that the wedding note included the term "give you" should not render the phrase "share with you" meaningless. The use of the term "share with you," coupled by the addition of the word "equally" clearly embraces the notion of community property. Case law is clear that all that is required by section 852 is an express declaration to unambiguously indicate a change in character or ownership of the property. (Starkman, supra, 129 Cal.App.4th at p. 664.) While the wedding note may not have been a textbook example in transmutation agreement drafting, perfection is not required. Based upon the clear language of the wedding note, Daniel made an express declaration to give his separate property to the community.
Claimants ask us, in the alternative, to invalidate the transmutation as a whole, claiming it was a promise to transmute dependent on future conditions and did not identify specific property. The wedding note specified an unequivocal desire to change Daniel's separate property to community property, and identified the property as everything he owned and his inheritance. Claimants contend the wedding note only promises to transmute undisclosed property "once [Daniel's] portion is settled" rather than making an immediate change in the character of marital property. While Daniel did not list specific accounts or pieces of real property, the transmutation was nevertheless valid because it clearly specified Daniel's separate property, including his interest, if any, in his parents' estate.
This case is distinct from Barneson, supra, 69 Cal.App.4th 583, relied on by claimants. In Barneson, a husband sent a letter to a bank asking to combine stock certificates and to transfer the stocks into the name of his then wife. (Id. at pp. 589-590.) The Court of Appeal reversed the family court's finding of a valid transmutation because the husband's directions to transfer the stock into his wife's name did not expressly indicate a change in the characterization of the property. (Id. at p. 590.) Here, by contrast, there is a clear demonstration of an intent to change the characterization of Daniel's separate property. This is more akin to the situation in Lund, where the court found the following language constituted a valid transmutation agreement: all property "held in the name of Husband having its origin in his separate property" was "hereby converted to community property." (Lund, supra, 174 Cal.App.4th at p. 45.) This was true even though a detailed listing of husband's separate real property was stricken from the agreement containing the transmutation. (Ibid.) Here, the court properly determined the wedding note was a valid transmutation agreement because it indicated an unequivocal desire to change the characterization of all of Daniel's separate property.
We therefore determine that the transmutation agreement was valid, but the family court erred in its interpretation of the wedding note by considering extrinsic evidence. Because this interpretation formed the basis for the court's order granting claimants' motion for judgment on the pleadings, we must reverse. We make no determination as to whether the wedding note should bind claimants and what responsibility, if any, claimants have.
III
DISPOSITION
We reverse the order granting judgment on the pleadings and dismissing claimants from the proceedings. The matter is remanded to the family court for an order holding that the transmutation at issue was from Daniel's separate property to the community. Christine shall recover her costs on appeal.
MOORE, ACTING P. J. WE CONCUR: FYBEL, J. THOMPSON, J.