Opinion
NOT TO BE PUBLISHED
APPEAL from a judgment of the Superior Court of San Diego County No. D 481729, Jefferey S. Bostwick, Judge.
HUFFMAN, Acting P. J.
Joseph De Marco (Joseph) appeals from the portion of a judgment of the trial court ordering him to pay $45,000 in sanctions and $5,000 in attorney fees under Family Code section 271, for breach of his section 721 fiduciary duties to his wife Jennifer De Marco (Jennifer). The sanctions were imposed in addition to an original order requiring Joseph to pay Jennifer $30,000 in sanctions and $20,000 in attorney fees. Joseph contends (1) the trial court had insufficient evidence to find Joseph had breached his fiduciary duty to Jennifer, (2) the trial court abused its discretion when it ordered sanctions against Joseph, and (3) the amount of sanctions and attorney fees ordered by the trial court imposed an unreasonable financial burden on Joseph. We affirm the original award to Jennifer of $30,000 in sanctions and $20,000 in attorney fees. We reverse the additional $45,000 in sanctions and $5,000 in attorney fees because the evidence was insufficient to support a finding Joseph breached his fiduciary duty to Jennifer.
For purposes of clarity, we refer to the parties by their first names and intend no disrespect.
Unless otherwise indicated, all further statutory references are to the Family Code.
Joseph was ordered to pay $30,000 in sanctions and $20,000 in attorney fees under section 271 in the original final statement of decision for two instances of violating his fiduciary duty to Jennifer. In light of new information discovered after trial, Jennifer requested a posttrial hearing. At the hearing the trial court found Joseph had violated his fiduciary duty again and modified the final statement of decision to reflect $75,000 in sanctions and $25,000 in attorney fees under section 271 for breach of his fiduciary duty to Jennifer under section 721. Joseph is only contesting the additional sanctions ordered at the posttrial hearing (($75,000-$30,000) $45,000 in sanctions + ($25,000-$20,000) $5,000 in attorney fees), not the $30,000 in sanctions and $20,000 in attorney fees he was ordered to pay in the original final statement of decision.
FACTUAL AND PROCEDURAL BACKGROUND
Jennifer and Joseph DeMarco were married in September of 1990. They were separated in December of 2003. Joseph filed for dissolution of marriage that same month. Trial took place on July 19, July 20, August 9, and was completed on October 12, 2007.
On September 8, 2007, Joseph's attorney wrote a letter to Jennifer's attorney stating:
"Mr. Demarco is active in the U.S. Navy until November 1, 2007 when he will retire from the military.... Mr. Demarco has no other income except for his military pay. [¶] Mr. Demarco has applied for several civil service positions in San Diego. To date, he has not received any notice that he will be engaged by civil service for any position applied for."
On October 2, 2007, Joseph filed an income and expense declaration with the trial court. Joseph checked the box on the form signifying "[his] financial situation ha[d] changed significantly over the last 12 months" because, "[a]s of 11-1-07 [he was going to] be retired from the Military and unemployed." Also, under the section titled "Other information I want the court to know concerning support in my case," Joseph wrote "[h]usband retires from the military effective 11-1-07. Husband has applied for civil service employment in San Diego; but, he has not received any notice about these applications. As of 11-1-07 husband will be unemployed with only his retirement income."
On December 6, 2007, a proposed statement of decision was filed by the trial court. Jennifer was ordered to pay child support. Joseph was found to have breached his fiduciary duty to Jennifer by endorsing her name on escrow checks and conveying community funds to his mother without Jennifer's knowledge or permission. Jennifer was found to have breached her fiduciary duty to Joseph for failing to accurately disclose her assets during the case. The trial court awarded Jennifer $30,000 in sanctions and $20,000 in attorney fees and costs under section 271 for Joseph's breach of his section 721 fiduciary duty. Joseph was awarded $15,000 in sanctions and $10,000 in attorney fees and costs for Jennifer's breach of her fiduciary duty to Joseph under section 2107.
On December 21, 2007, Joseph filed his objections to the proposed statement of decision, which did not include any objection to the sanctions. Jennifer also filed her objections, including objections to the amount she was sanctioned. On December 27, 2007 the final statement of decision was filed by the trial court. Joseph's resources were listed as $6,000 in liquid assets and between $700,000 and $750,000 net in nonliquid assets after division of the community property. Joseph's sanctions and child support amounts did not change from the proposed statement of decision to the final statement of decision. Jennifer's sanctions were lowered from $15,000 in sanctions and $10,000 in attorney fees to $10,000 in sanctions and $5,000 in attorney fees because of her objections.
On January 7, 2008, Joseph's attorney sent a letter to Jennifer's attorney stating that Joseph started employment on January 7 as an inspector general. The letter went on to say his salary would be $92,655 per year. On January 10, 2008, Jennifer filed a Code of Civil Procedure section 662 motion with the trial court, seeking modification of spousal and child support "based upon Joseph's undisclosed re-employment and working activities from November 1, 2007 to the date of hearing." Jennifer also sought modifications of the sanctions amount she was ordered to pay in the final statement of decision. She did not request the amount Joseph owed her in sanctions be increased.
On January 24, 2008, Jennifer requested child support be stayed and on the same day Joseph responded to the request. He notified the trial court that he was unemployed during the months of November and December in 2007 and asserted Jennifer was obligated to pay him child support for those months. On January 22, 2008 Michelle Wuerz, a civilian programs manager for the Navy, wrote a letter verifying Joseph was hired as an inspector general for the Navy on January 7, 2008. On March 24, 2008 Joseph filed an income and expense declaration with the trial court stating he started a new job as an inspector general with Navy civil service on January 7, 2008. On March 24, 2008, Joseph filed his response to Jennifer's request for modification of the final statement of decision. Joseph asserted he "had no information during trial to disclose about his employment." He stated he had applied for three different civil service positions and he was one of many applicants. Joseph declared he was invited to interview for the Navy inspector general position on or about November 11, 2007, was offered the job on December 13, accepted employment on December 20, attended orientation on December 26, and started work on January 7 of the following year. His selection and start date were verified by documents he lodged with the trial court.
A special master was appointed to make findings on a number of issues raised in Jennifer's Code of Civil Procedure section 662 motion. The issues relevant to this appeal are "whether [Joseph] knew at the time of trial that he would be receiving pay for selling back leave," "whether [Joseph] knew of his post retirement employment" and a "[r]ecommendation to the court concerning sanctions against [Joseph] under Family Code § 271 (but not the amount)." The special master issued his report on September 8, 2008. As to whether Joseph knew he would be receiving pay for back leave, the special master found Joseph knew he would be compensated for his leave and it was just an issue of whether Joseph would receive the money as a straight buy out or continue receiving pay after he switched jobs.
He gave a lengthy explanation concerning whether Joseph knew of his post-retirement employment:
"The real question is did Petitioner know at the time he testified, that he was to be employed in his current position? Petitioner maintains he had no actual knowledge of this subsequent employment. He maintains he was applying for it, but was just one of several candidates. He provided two letters which confirm his statement (please see attached Exhibit 'A' and Exhibit 'B'). [¶]
The above seemed to defy logic. Petitioner was performing a specific job for the Navy (Inspector General). This job was transformed from a military position to a civilian position. This transformation took place almost exactly at the same time as Petitioner's discharge from the military. Because of this, I spoke personally with Michelle Wuerz (Civilian Programs Manager). She related that technically Petitioner did not have official notice of his employment until it was offered (sometime in December of 2007). However, as she stated he was and he knew he was, the only serious candidate for the position as early as April of 2007. She further indicated that Petitioner was the Chief of Staff's selection for this position from the April 2007 time-frame, and Petitioner knew this. Ms. Wuerz related that starting in April of 2007, Petitioner was attempting to assist in her establishing the job description.... This is not a run of the mill civil service job, rather it is a very high level position, one that Petitioner was already filling. The fact that he received the position indicates he was doing a good job while on active duty. Why then would the military switch to another person to do the same job that Petitioner was already doing? Accordingly based upon Ms. Wuerz statements and my experience, it seems obvious that Petitioner knew the position was his as early as April 2007."
On the issue of recommendation of section 271 sanctions the special master said:
"As to post military employment, if Petitioner [knew] [when] he testified [that] he had no prospects for employment post-retirement, this is simply untrue.... If, however, Petitioner's testimony was to the effect that he had not been officially offered the position at the time of trial, then he was truthful. I have not seen the transcript of the trial, and therefore will leave that to the court."
On September 11, 2008, Jennifer filed a declaration with the trial court reasserting the arguments that she made in her initial Code of Civil Procedure section 662 motion. She added a request for more sanctions stating:
"I request that Joseph be Sanctioned further for his Breach of Fiduciary Duty and Good Faith Disclosure. Joseph clearly mislead this Court regarding income and employment. [¶] Joseph should be Sanctioned in the sum of $20,000.00 as further F.C. § 271 Sanctions as attorney fees payable to Respondent."
On September 12, 2008, Joseph filed two documents with the trial court asserting Joseph was not guaranteed the position of inspector general. One of those documents was a statement from Lorna Tipa, a civilian personnel manager (same position as Michelle Wuerz). She stated, "pre-selection of applicants into any vacant position is prohibited therefore suggesting that Mr. Demarco knew he had this position before he was screened interviewed and official offer was made is not only wrong but illegal under our hiring procedures. Even though Mr. Joseph Demarco had been [filling] the IG position as a military member, and was a highly viable candidate, his selection was not a guarantee and he was told this on several occasions."
Joseph also lodged a document from Susan Stewart, a Navy Judge Advocate, regarding the position. She stated three serious candidates for the position existed and two of the candidates had more experience than Joseph. She noted Joseph had experience at a higher level than the other two, which was an important job criterion for the position. Her assertion was because Joseph had experience at a higher level the position was offered to him. As to whether Joseph knew about the position she stated:
"CNAF was required and did follow all regulations for hiring a civilian IG for the command. It would be illegal to guarantee a military member a civilian position. Further, military members cannot presume that they will get hired for a civilian position they formerly held because the law requires Navy civilian job openings go through a set hiring process. Although Joe Demarco served as the IG while on active duty, there was no guarantee that he would be picked for the newly created civilian IG position. He was merely one of the applicants and eventually selected and offered the job in December 2007."
In October of 2008 a hearing was held on the Code of Civil Procedure section 662 motion. The trial court first heard argument on Jennifer's sanctions. Jennifer's attorney argued the investment opportunity Jennifer failed to disclose was not cash but a note that eventually declined in value and the trial court should remove the sanctions. The trial court responded, whether the investment was cash or not, she still had a duty to disclose the investment opportunity. The court said no matter if her note was viable or not, it did not mitigate the disclosure. Jennifer's counsel was reminded by the court that it had already taken into account the extent of her violations and sanctioned her less because her violations were less egregious than Joseph's violations. Unexpectedly, 20 pages later in the transcript, the trial court dropped Jennifer's sanctions to $5,000 and no attorney fees because the trial court did not believe the investment opportunity was as viable as it originally believed at trial.
The trial court then heard argument on Joseph's sanctions. Jennifer's attorney asked the trial court to sanction Joseph $20,000 for the breach of fiduciary duty to Jennifer for not disclosing his job. Her attorney emphasized the findings of the special master. Joseph's attorney argued although Joseph knew he was a candidate for the job, he did not have the job and was told not to count on it. He also argued other people were being interviewed for the job who had more experience than Joseph, and it "[would have been] illegal to hire [Joseph] directly into the civil service without consideration of other applicants]." He emphasized the fact the special master and Michelle Wuerz failed to mention this critical factor. Finally, Joseph's attorney asserted Joseph actually did disclose his income, because Joseph's attorney mentioned in his final argument at trial that Joseph expected to be employed by the end of the year.
After considering the arguments for both sides, the trial court found Joseph "[had] once again violated the fiduciary duties that 721, 2107, 1100 all lay out [in] the Family Code by failure to update accurately his income for the trial court." The trial court explained over many pages of the trial transcript why it found Joseph knew about the job as early as April 2007.
The first reason the trial court gave was "it defie[d] logic" to find that Joseph did not know about the job long before trial. This finding was based in part on Michelle Wuerz's statement, "he was and knew he was the only serious candidate for the position as early April of 07." The trial court also based its finding on the fact, "[Michelle Wuerz] had to warn him off his attempts [to provide input on the job description] as she knew he was the prime candidate and felt... his participation would be a conflict of interest." The trial court asserted Joseph would have had no reason to provide his input if he was not expecting the job. In addition, it was stressed that the military reclassified the inspector general position "from a military billet to a civil service position":
"The day after [Joseph] retired, it ceases to exist apparently as a military assignment and becomes a civil service job to be filled by some candidate of which [Joseph] was in the pool of candidates for the job. [¶] That suggests to the court that the military intended to keep [Joseph] in the job. Even though he was no longer in the military, they were going to change the classification of the job or not make it available to active duty service members and give it to a civilian. [¶] Not surprising, the civilian is Joseph."
The trial court added:
"If he disclosed and said, 'You know I'm the number one candidate to be the civilian inspector general in my same job and don't know when it will start, but I have hopes it will start in December,' we would all view this differently."
The court later said:
"He should have disclosed this either before trial or early on in trial to the opposing party that, look, I'm the candidate for this inspector general job. Yes, I haven't been hired, but I feel confident that I'm going to get it."
The trial court rejected Joseph's argument that because other qualified candidates existed the job was not assured to him. The argument was rejected because Joseph was on the staff of the person responsible for hiring the inspector general, the chief of staff. "[Michelle Wuerz] indicated that [Joseph] was on the Chief of Staff selection for this position from the April 2007 time frame and [Joseph] knew this." The trial court interpreted this to mean "[Joseph] had a personal relationship with the ranking military officer who... oversees the position." In the view of the trial court this made it very unlikely somebody from another assignment could have come in and successfully competed with Joseph. The court added: "And the fact that they had more experience underscores exactly what we are saying here, which is even though they had more experience than [Joseph] had, they weren't serious candidates for the job because what they didn't have is what he had, which was the contact."
The trial court also based its decision on the perceived motives and credibility of the parties involved and the experience of the special master. The trial court did not give much weight to the military letters, which asserted Joseph was not guaranteed the job and it would have been illegal to hire him before considering other candidates. The trial court said:
"And a lot of what I think we are seeing through the military is, you know, litigation, mitigation, here. They are trying to cover themselves with formal letters to this court by saying oh, no. We didn't do anything wrong. We didn't formally offer him the job."
The trial court perceived the data as a mere formality:
"Mr. De Marco has gotten the military to present some formal data to the court... saying we did not offer this job to Mr. De Marco until 'x' days. There were other candidates and illegal for us to do that. That is the key. Yes, it would have been illegal for them to do it."
The trial court also did not find Joseph credible because of his previous breaches of fiduciary duty and information about his misrepresentations to lenders revealed at trial. The trial court emphasized it did not believe Joseph was honorable:
"Unnerving, given his background. A West Point graduate. The motto of the school is duty. Honor. He has no honor. How he got out of that institution, I don't have any idea. How he functioned in the military given his view of what is honorable, I have no idea. To him the truth is a tool to be used to get what he wants, not to tell what it is. To be molded and changed to accomplish his ends. Same with her frankly. If you are asking me to find that he's believable, there's no chance. Same with her."
The trial court did trust the judgment of the special master because the trial court knew him and his reputation and knew that he was a former military member who understood the language of the military, knew who to talk to and contact, and understood "what the nature of the job is and all of that." The trial court also believed Michelle Wuerz was a credible witness because she might have placed her job in jeopardy for revealing Joseph knew he was getting the job.
Finally, the trial court rejected the argument that Joseph's attorney properly disclosed Joseph's prospective employment at trial, because the trial court did not consider Joseph's attorney's final argument as evidence. According to the trial court, Joseph should have disclosed his job prospect in writing or on the witness stand but "instead he sat there moot [sic] on this issue."
The trial court modified the child support order for November and December of 2007 to reflect the trial court's belief Joseph had the ability to earn his January 2008 salary as early as November of 2007. The trial court said:
"I do believe he delayed this so he could not be under a support order for two months, build a house and all of that or take a two-month vacation. Either way, I believe, he had the ability to earn. He had the opportunity. He had the training. And he had the unwillingness really to start working as the inspector general in the civilian position beginning 11-07."
The trial court decided not to issue any child support orders or sanctions based on the retirement income from unused leave.
After modifying child support, the trial court moved on to the issue of sanctions:
"The court: On Mr. De Marco's side, this represents at least a second and a third violation of the fiduciary duty. What was his sanctions [sic]?
"[Joseph's Attorney]: I think it was 50.
"[Jennifer's Attorney]: Fifty
"The court: That will go up to 100. You don't test the court again, sir. That is what happens. It gets doubled. Sanctions are 100,000. Okay."
Jennifer' attorney then requested attorney fees under section 2030. The trial court responded by saying:
"The court: The better theory is the 271 theory, which really the fiduciary duty statutes contemplate. In other words, the sanction is a sanction that is designed not to be based on the economics of the case as much as a punishment, a deterrent for further sanctions. [¶]... Has there been such a motion made, 271 fees? Has it ever been noticed for 271?"
"[Jennifer's attorney]: We made a request for 271 at trial.
"The court: Okay. What is the amount you are asking for there?
"[Jennifer's attorney]: I had suggested in my supplemental declaration $50,000 on the basis that she had incurred about $175,000 worth of fees between Mr. Fritz and my offices and that that would be a proportionate contribution based on the fact that he had three times the income that she had throughout the case.
"The court: All right. His sanctions will be 75,000 and 271 fees will be 25,000. I decreased the sanctions because this is a subsequent finding of a violation of the fiduciary duties. Obviously, the sanction statutes are designed to go up where there's more violations to deter this type of behavior -- increase."
The trial court then ordered that a final statement of decision with the amendments entered during the hearing be reduced to a judgment of dissolution. Joseph's attorney asked for clarification on the sanctions.
"[Joseph's attorney]: 75 Sanctions to Mr. De Marco. 25,000...
"The court: 271 fees.
"[Joseph's attorney]: Is that of 75 or in addition?
"The court: In addition to. Right.
"[Joseph's attorney]: To counsel?
"The court: Yes. The sanctions are to the respondent. Fees are to counsel."
This concluded any discussion of the amount of Joseph's sanctions. The court never directly addressed the financial burden of the sanction on Joseph. Although the trial court did make it clear it was familiar with Joseph's salary at the time of the hearing and with all of the information in the final statement of decision.
The final statement of decision included a listing of Joseph's available financial resources.
II
DISCUSSION
A. Applicable Statutory Provisions
We first examine the general principal of fiduciary duty, the specific fiduciary obligations of disclosure spouses owe each other during a dissolution proceeding, and the sections of the Family Code giving the trial court authority to issue sanctions.
The Restatement Third of Agency defines the general principal of fiduciary duty, "An agent has a fiduciary duty to act loyally for the principal's benefit in all matters connected with the agency relationship." (Rest.3d. Agency, § 8.01.) Section 721 of the Family Code lists the specific fiduciary obligations spouses owe each other. The statute states:
"[A] husband and wife are subject to the general rules governing fiduciary relationships which control the actions of persons occupying confidential relations with each other. This confidential relationship imposes a duty of the highest good faith and fair dealing on each spouse, and neither shall take any unfair advantage of the other. The confidential relationship is subject to the same rights and duties of nonmarital business partners, as provided in Sections 16403, 16404, 16503 of the Corporations Code including... [¶]... [¶] (2) Rendering upon request, true and full information of all things affecting any transaction which concerns the community property". (§ 721, subd. (b)(2).)
The duties in the statute also include but are not limited to: (1) providing each spouse access at all times to any books kept regarding a transaction for the purposes of inspection and copying and (2) accounting to the spouse, and holding as a trustee, any benefit or profit derived from any transaction by one spouse without the consent of the other spouse which concerns the community property. Neither of these additional duties are at issue in this appeal. (§ 721, subds. (b)(1), (b)(3).)
Section 2100 imposes similar requirements to 721 but in the context of a marriage dissolution. Section 2100 requires "a full and accurate disclosure of all assets and liabilities in which one or both parties have or may have an interest... 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." (§ 2100, subd. (c).) The statute adds "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 each party] will have a full and complete knowledge of the relevant underlying facts [at the time of trial.]" (Ibid.)
Section 2102, subdivision (c) spells out the length and scope of the fiduciary duties. Each party is subjected to the fiduciary standards in section 721 as to all issues relating to the support and fees from the date of separation to the date of a valid, enforceable and binding resolution of all issues relating to child or spousal support and professional fees, including immediate, full, and accurate disclosure of all material facts and information regarding the income or expenses of the party.
Section 2107, subdivision (c) requires the imposition of monetary sanctions and reasonable attorney fees if a party does not "comply with any portion of the chapter of the Family Code that deals with a spouse's fiduciary duty of disclosure during dissolution proceedings, i.e., sections 2100 to 2113." (In re Marriage of Feldman (2007) 153 Cal.App.4th 1470, 1477 (Feldman).) The statute provides, "[s]anctions 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 noncomplying party acted with substantial justification or that other circumstances make the imposition of the sanction unjust." (Ibid.)
Section 271 allows gives the trial court authority to impose sanctions for a broader range of conduct than section 2107. The statute allows the trial court to, "[n]otwithstanding any other provision of [the Family] Code,... 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." (§ 271, subd. (a).) The statute also provides that an award of attorney fees and costs is in the nature of a sanction. The statute requires the trial court to take into account the assets, income, and liabilities of the party being sanctioned and in light of that information not impose a sanction, which would impose an unreasonable financial burden on the sanctioned party. (Ibid.) Section 271 does not require a showing of financial need for the party requesting sanctions, but it does require the party sanctions are requested against be given adequate notice and opportunity to be heard. (§ 271, subds. (a), (b).)
B. Standard of Review
We first review any factual findings supporting the sanctions under a sufficiency of evidence standard. (Feldman, supra, 153 Cal.App.4th at p. 1479.) " ' " ' 'In reviewing the evidence on... appeal all conflicts must be resolved in favor of the [prevailing party], and all legitimate and reasonable inferences indulged in [order] to uphold the [finding] if possible." ' " ' " (Ibid.)
Next, we review the imposition of the sanctions under section 2107, subdivision (c) and section 271 under an abuse of discretion standard. (Feldman, supra, 153 Cal.App.4th at p. 1479.) " ' " '[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.' " ' " (Ibid.) " 'In reviewing such an award, we must indulge all reasonable inferences to uphold the trial court's order.' " (Ibid.) The power to impose discovery sanctions is a broad discretion subject to reversal only for arbitrary, capricious, or whimsical action. (In re Marriage of Michaely (2007) 150 Cal.App.4th 802, 809.) We apply the same standard to sanctions under sections 271 and 2107, because sanctions under these statutes are similar to sanctions for civil discovery abuses. (Feldman, supra, 153 Cal.App.4th at p. 1478.)
Even though the judge imposed the sanctions for a breach of fiduciary duty under section 721, section 2107, subdivision (c) is the section, which gives the trial court authority to issue sanctions for section 721 violation.
C. Joseph Did Not Waive His Objections to Either the Sanctions or Attorney Fees
Jennifer claims Joseph waived his opportunity to contest the attorney fees under section 271 because Joseph did not object to the original $20,000 in fees and because he never contested the amount of fees at the hearing. She argues the alleged failure to object should be held fatal because in Feldman we held, " ' "[a]n appellate court will not consider procedural defects or erroneous ruling where an objection could have been, but was not raised in the court below." ' " (Feldman, supra, 153 Cal.App.4th at p. 1496.)
We find Joseph did not waive his opportunity to appeal the attorney fees under section 271, because he did object to the imposition of additional sanctions at the hearing and he was never given an opportunity to contest the amount of sanctions. Joseph made it clear in his reply brief he is not contesting the original amount of sanctions, only the additional amount of sanctions. Whether he objected to the original sanctions or not, is immaterial to the fact Joseph raised the issue of imposition of additional sanctions when he argued against them at the hearing. As to the amount of sanctions, Joseph was never given an opportunity to contest the amount. The judge asked Jennifer's counsel how much he was requesting in attorney fees and then immediately decided on an amount without asking for any input from Joseph's counsel. The procedure the trial court followed in imposing the sanctions never gave Joseph an opportunity to object.
Jennifer also argues Joseph waived any and all objections to the assessment of the award based upon section 721 because Joseph never mentioned section 721 in his opening brief and because he allegedly "attempte[d] to conflate the two separate and distinct awards into one," analyzing them both under section 271. Because of these reasons, the respondent claims Joseph failed to raise any issues as to the amount of additional sanctions.
We find Joseph did not waive any objections to the additional sanctions based upon section 721. The sanctions and attorney fees are both based upon an underlying finding of fact Joseph had a job, which he failed to reveal, thus, breaching his fiduciary duty under section 721. The appellant's arguments are the evidence does not support the underlying fact and the trial court abused its discretion in applying the sanctions. Under either an abuse of discretion or a sufficient evidence standard, it is irrelevant whether the awards are analyzed separately or together because the awards are based on the same factual finding and were imposed at the same time in the same manner. If either award fails to be upheld under either standard, they both fail. Joseph was also not required to reference section 721. Joseph's argument is insufficient evidence existed to support a finding he had a job to disclose at the time of trial. This argument does not require reference to the text of section 721.
D. Joseph's Nondisclosure
1. Sufficient evidence did not exist to support a finding Joseph breached his fiduciary duty of full disclosure.
Whether a fiduciary duty has been breached is a question of fact. The existence of a fiduciary relationship is a question of law. (David Welch Co. v. Erskine & Tulley (1988) 203 Cal.App.3d 884, 890.) Joseph is not contesting he had a fiduciary duty to his wife to disclose material facts about his employment and income. Joseph instead argues the evidence was insufficient to support a finding he breached the duty.
The case cited deals with an attorney's fiduciary duties to his client but the underlying standard of review is also applicable to spousal fiduciary duties.
Even after indulging in all reasonable inferences to uphold the finding, the evidence is not sufficient to support a finding Joseph failed to reveal material facts concerning his income. The trial court relied on Joseph's relationship with the hiring officer, his expectations of receiving the job going back to April 2007, the likelihood Joseph was the only serious candidate, his input on the job description, his position in the military, the credibility of parties and witnesses, and the military experience of the special master to make its finding, Joseph breached his fiduciary duty because he failed to reveal his employment prospects. All of these reasons, when analyzed individually or taken as whole, do not contradict the ultimate material fact Joseph did not officially have the job. Joseph did not lie when he said in the October 2007 income and expense declaration he was going to be unemployed in November and he had applied for civil service positions in San Diego and had yet to receive notice. Even though the trial court believed the military letters declaring Joseph did not officially have the job were written because the military wanted to protect itself from litigation, the trial court still acknowledged that at the time of trial, the military could not have legally offered Joseph the inspector general position. In addition, other candidates for the job existed. Whether Joseph believed the other candidates were serious candidates or not, he still had to interview for the job and the military was precluded from offering him the job until they officially determined he was the best candidate for the position.
At most the evidence supported an inference, Joseph "expected," or was "reasonably certain" he was going to receive the position. Not enough evidence exists to support the fact Joseph had the job or even that Joseph "knew" the position was his as early as April 2007. A person cannot "know" something that has not happened yet, he or she can only believe it. Joseph's belief about his future employment was speculation, not a material fact, and he did not have a fiduciary duty to reveal speculation. The military told him several times the position was not guaranteed. They could have offered the position to someone else and Joseph would not have had any legal recourse. The position was not factually his nor could he have "known" it was.
The evidence also does not support a finding Joseph did anything unfairly advantageous, contradictory to Jennifer's benefit, or frustrating to the settlement of litigation. Joseph revealed he had a job and when he started the job in January, and Jennifer was free to request the child support order be modified in light of that information. Even if Joseph said to the trial court, "I'm the number one candidate to be the civilian Inspector General in my same job and don't know when it will start, but I have hopes it will start in December", it would not have changed the fact, Joseph was going to be unemployed in November and December. The child support order had to be decided on that information until Joseph officially had a job. It is possible the trial court could have continued the trial. The trial court also claimed, when it made the modified child support order, that Joseph had the ability to earn during November and December but he delayed getting the job. That finding, though, was completely unsupported by any testimony or evidence.
2. The manner in which the trial court issued sanctions was an abuse of discretion.
Even if sufficient evidence existed for a finding Joseph breached his fiduciary duty, the trial court abused its discretion by issuing sanctions in an arbitrary manner. The sanctions appeared to be motivated, at least in part, by emotion and the trial court's dislike for Joseph. Joseph's credibility was a relevant issue in the case. It was not relevant for the trial court to talk about Joseph's lack of honor or the trial court's surprise he made it through West Point for 10 lines of the transcript. The long, critical dialogue demonstrates the emotional motivation behind the sanctions.
Since we found additional sanctions should not have been imposed at all, we do not reach the issues of whether Joseph's financial situation was adequately considered or whether the amount of sanctions was unreasonably financially burdensome.
The amount of the sanctions was also not supported by clear calculations or reasoning. The trial court appears to initially treat the original $50,000 as one joint amount of sanctions instead of two separate awards of sanctions and attorney fees. First, the trial court said the original $50,000 sanctions would double to $100,000 for additional fiduciary violations and "test[ing]" the trial court. Then, the trial court changed course and appeared to recognize two separate awards. The trial court said sanctions would only go up to $75,000 instead, even though the trial court acknowledged the sanction amount for each additional violation was supposed to increase. Then, the trial court granted $25,000 in attorney fees, which is half of what Jennifer's attorney requested. The trial court never explained why the additional sanctions amount went down for a subsequent violation or why half of the attorney fees requested were awarded, instead of all or none. The trial court also never gave Joseph an opportunity to be heard on what the amount should be.
The reduction in Jennifer's sanctions is equally hard to follow and further demonstrates the general arbitrariness of the trial court's decisionmaking process. First, the trial court ended its initial discussion on Jennifer's sanctions by finding that whether or not the investment was viable, the viability did not mitigate the disclosure. Later on in the hearing, without any additional input, the trial court completely reversed its opinion and reduced Jennifer's sanctions by two-thirds because of the viability of the investment. The failure of the trial court to consistently handle the sanction awards independently or separately, the lack of explanation and randomness of the trial court's decisions, and the failure to hear both sides on the amount of sanctions, shows the trial court's decisions were arbitrary and thus, the imposition of sanctions was an abuse of discretion.
DISPOSITION
The additional $45,000 in sanctions and $5,000 in attorney fees awarded to Jennifer during the posttrial hearing are reversed. The award to Jennifer in the original final statement of decision, for $30,000 in sanctions and $20,000 in attorney fees under section 271, is affirmed. Each party shall bear their own costs on appeal.
WE CONCUR: McDONALD, J. McINTYRE, J.