Opinion
A161935
06-29-2021
In re the Marriage of TESSA LUU and PETER AVRITCH TESSA LUU, Plaintiff and Appellant, v. PETER AVRITCH, Defendant and Respondent.
NOT TO BE PUBLISHED
San Francisco City & County Super. Ct. No. FDI-17-787511
Margulies, J.
As part of the parties' judgment of dissolution (judgment), plaintiff Tessa Luu was awarded an online business run by the parties, which was operating on servers claimed by defendant Peter Avritch as his separate property. Approximately two years postdissolution, Avritch terminated Luu's access to his servers after providing advanced notice, which caused the business to cease operations. Luu subsequently filed two separate ex parte motions seeking access to Avritch's servers. While the court provided certain interim relief, at Luu's request the court set a three-day hearing on the matter. The court ultimately rejected Luu's position and imposed $85,000 in sanctions against her.
The court also considered certain claims by Avritch regarding Luu's failure to pay various amounts required under the parties' marital settlement agreement. Those claims, however, are not relevant to this appeal.
On appeal, Luu asserts the trial court erred by concluding (1) the two servers at issue were Avritch's separate property, (2) Avritch did not violate any duty by failing to disclose his separate ownership of the servers, and (3) Avritch's conduct did not breach the marital settlement agreement or justify setting aside the marital settlement agreement. Luu further contends the trial court erred in imposing sanctions on her pursuant to Family Code section 271. While we vacate the sanctions and remand that issue for the trial court to consider whether imposing sanctions would constitute an unreasonable financial burden on Luu, we otherwise affirm the trial court's order.
All statutory references are to the Family Code unless otherwise noted.
I. BACKGROUND
The parties married in 2000. During the course of their marriage, the parties operated an online business known as “Inside Stores.” Avritch developed and maintained all of the technical/back-end work for Inside Stores. Luu managed the front-end operations. Avritch also ran a separate business, Peter Avritch Consulting. Avritch, through his consulting company, worked for a third party, Jim Du Molin, from 2003 through early 2016. In or around 2014, Avritch and a former colleague, Vardan Mkrtchyan, performed some work for Du Molin, which involved migrating computer operations off of two servers, a Dell R510 server (R510 server) and a Dell R410 server (R410 server). Once that migration was complete, Avritch requested that Mkrtchyan remove the R510 and R410 servers. Mkrtchyan did so and kept them in his possession. In late 2016, Du Molin gifted the R510 and R410 servers to Peter Avritch Consulting. Avritch testified the servers were gifted in the “fourth quarter” of 2016, whereas Luu testified the servers were gifted around June 2016.
The parties separated in September 2016. In approximately May or June 2017, the Inside Store server (IS server) experienced a partial power failure. Avritch recruited Mkrtchyan to assist in repairing the IS server and setting up the R510 server. Mkrtchyan was not involved in migrating any data to the R510 server. At that time, Avritch created a copy of the Inside Stores operations onto the R510 server and “ ‘started a folder sync' ” between the IS server and the R510 server. Mkrtchyan testified he believed the R510 server became the primary server running Inside Stores, and the IS server became the backup server.
In June 2017, the parties began discussing the marital settlement agreement (MSA), which was executed a few months later. While the MSA assigns assets of Peter Avritch Consulting to Avritch, he testified he did not specifically disclose the R510 and R410 servers as part of that business's assets. Avritch testified he did not believe the value of the servers was material compared to the $5 million community estate at issue in the MSA. However, he acknowledged at the time the parties signed the MSA the R510 server was running Inside Stores. Luu testified she was not aware of any assets held by Peter Avritch Consulting.
The parties also executed a transfer of ownership agreement (TOA), regarding ongoing ownership of Inside Stores as part of the MSA. While the MSA was prepared with the assistance of a mediator, Avritch primarily drafted the TOA. The TOA required Avritch to deliver all source code to Luu to recreate the Inside Stores online environment, provide “up to 40 hours of general technical assistance, training and architectural overviews of the Source Code and its server installation” to a qualified individual designated by Luu, and provide certain website enhancements. The TOA also required Avritch to “remain available to Inside Stores in an advisory capacity for 36 months” in a “limited role” with “minimal responsibility, ” “generally limited to phone calls, emails and simple web server administration.” In exchange, Luu agreed to accept certain financial obligations, such as paying off various credit cards. The TOA also required Luu to pay Avrich $10,000 per month for 24 months and $5,000 per month for 12 months, purchase $10,000 in computer equipment for Avritch, and cover Avritch's medical insurance for 24 months.
The TOA also states Inside Stores “owns a single Dell R10 [sic] server which is presently co-located at Multacom.” In a section entitled “Business Continuity, ” the TOA states: “[B]usiness continuity and disaster recovery at Multacom is paramount to maintaining normal operations, and that where possible, it is advisable to prepare in advance for problems with server hardware and software. Therefore, LUU/Inside Stores shall permit and encourages AVRITCH to co-locate his server(s) at Multacom alongside the Inside Stores server(s) for the mutual benefit of the parties.... This permission is granted and shall continue for 36 months.... [¶] The benefit to LUU/Inside Stores of this Section is that by AVRITCH having equipment adjacent to the equipment owned by Inside Stores, it creates a no-cost level of extra insurance and potentially quicker recovery and a wider variety of recovery options... in the event of a catastrophic server failure.”
Multacom is an Internet service provider located in Los Angeles, California that provides co-location services to warehouse independently owned servers and facilitate high-speed access to the Internet.
The parties filed the judgment on the dissolution of their marriage in October 2017. Postdivorce, Avritch continued to provide technical support pursuant to the terms of the TOA. Regarding the components necessary to continue operations, Avritch testified another engineer working for Inside Stores had a full copy of all source code for Inside Stores. Avritch testified the TOA provision allowing him to store his servers at Multacom merely allowed-but did not obligate-him to assist Luu with his servers if needed. Luu testified she did not have any understanding regarding different ownerships of the servers operating Inside Stores, and believed they were all part of Inside Stores's assets. However, she acknowledged the TOA referenced Avritch's servers as separate from Inside Stores's server.
In June 2019, Mkrtchyan took over the technical support of Inside Stores from Avritch. Mkrtchyan stated Avritch provided approximately 20 to 30 hours of training. At that time, the R510 server continued to act as the primary server for Inside Stores.
In November 2019, the IS server crashed, leaving the R510 server as the sole platform running Inside Stores. While Mkrtchyan and Luu discussed moving the Inside Stores data to the cloud or purchasing a backup server, neither of these actions were taken at that time. Instead, Mkrtchyan located sufficient parts to make the R410 server operational, reconfigured that server, copied the data and programming onto the R410 server, and utilized it as a backup. Mkrtchyan believed he informed Avritch about his use of the R410 server as a backup for Inside Stores.
On December 7, 2019, Luu suffered a serious spinal injury, which resulted in her hospitalization. On December 17, 2019, Avritch sent Luu a formal demand letter for unpaid amounts under the TOA's installment payment plan. He also informed her that he planned to reclaim the R510 and R410 servers for his own personal purposes. He advised her to complete her backup and reconfiguration by January 15, 2020, inform him if she needed additional time, or, alternatively, purchase the servers for $5,000, plus approximately $7,500 worth of mileage points. Avritch also informed Mkrtchyan that he was taking possession of the servers by January 15, 2020. In response, Luu informed Mkrtchyan she “d[id] not wish to use any of the current equipment” and instead wanted to purchase a new server. However, Luu testified she did not have the money and had to borrow a credit card from her brother to buy the server. She was not able to purchase it until mid-January 2020. Luu informed Avritch she would resolve these outstanding issues in January, after she had further healed from her accident.
The record also reflects Mkrtchyan did not contact Avritch between December 17, 2019 and January 16, 2020. However, the record is unclear as to whether Avritch or Luu requested that he refrain from doing so.
In early January 2020, Luu proposed the parties participate in mediation to resolve the outstanding issues between them. Avritch informed Luu he would not participate in mediation regarding the R510 and R410 servers. Avritch testified the mediator required him to provide the servers to Luu as a condition for starting mediation, but he was unwilling to do so. However, he was willing to participate in mediation without providing Luu with the servers. Unfortunately, the parties were unable to agree to mediation terms or schedule a mediation.
On January 16, 2020, Avritch took over the R510 and R410 servers, effectively causing the Inside Stores websites to crash. Mkrtchyan discovered his administrator password for the servers was either disabled or deleted, and Avritch denied him further access to the servers. Mkrtchyan's access to a Github account, which held the source code for Inside Stores, was also denied. Mkrtchyan asked Avritch to refrain from taking down the R510 and R410 servers and asked if they could rent the servers for a period of time to transfer data. Mkrtchyan testified he would have needed approximately one to two days to copy all of the Inside Stores data. Avritch informed Mkrtchyan he would not communicate with him and would only negotiate with Luu. Mkrtchyan subsequently received an e-mail from Luu stating she would prefer to “ ‘go dark' ” for a few days rather than work with Avritch. Mkrtchyan again checked with Luu, to which she replied, “ ‘I'm not going to ask this guy any favor or discuss any arrangements with him.' ” Luu testified she believed Inside Stores had a backup server that could be quickly repaired and become operational.
Mkrtchyan was able to compile the majority of the data for Inside Stores to get the websites running again by late March 2020. However, the last backup he had was from November 2019, which resulted in approximately a month and a half of lost data regarding items such as user information and orders.
Luu filed two ex parte motions alleging Avritch breached the terms of the MSA, which caused the Inside Stores websites to fail. In February 2020, the court issued an order in response to Luu's first ex parte motion. The court expressed doubts about the merits of Luu's claims. However, the court ordered Avritch to “turn on” his servers and either copy all data related to Inside Stores or allow Mkrtchyan access to copy Inside Stores's data. In light of the warnings Avritch provided to Luu prior to reclaiming his servers, the court noted it would entertain a claim by Avritch for reasonable compensation for complying with the order.
Following Luu's second ex parte motion, the court issued another order instructing Avritch to (1) reverse any action taken with respect to the IS server; (2) provide Luu with login information to the IS server; (3) restore any files needed to run Inside Stores to the IS server that he migrated to another server; (4) release and transfer Inside Stores's domain names to Luu; (5) release access to Github; and (6) provide Luu access to “Amazon AWS.” The court concluded the order as follows: “In sum, to the extent that [Avritch] has taken a direct action or series of actions which caused Inside Stores LLC operations to fail, he is ordered to immediately reverse such actions. To the extent that the system has failed because [Avritch] took actions related to his own servers, he is ordered to make immediately available for transfer any files, programs, data related to Inside Stores LLC so that [Luu] may resume her operations on her own.”
In March 2020, the court conducted a further hearing in the matter. In its tentative ruling, the court concluded Avritch “materially completed” all provisions of the MSA. The court concluded the disruption to Inside Stores's business was due to Luu's failure to take action during the two years since execution of the MSA. The court declined to make any further order, but noted Luu could exercise her option from the February 2020 order to gain one week's access to Avritch's server to download her data, provided she compensate Avritch for his time. The court also sanctioned Luu in the amount of $45,000, pursuant to section 271.
The record is unclear as to whether the court adopted this tentative ruling. However, in its “Findings and Order After Hearing, ” the court stayed its prior ex parte orders as well as the tentative ruling. The court set the matter for a three-day hearing “limited to the factual allegation by [Luu] that [Avritch] breached his duty under the [MSA] by transferring data to his server without [Luu's] knowledge, ” and reserved the issue of “further attorney fees and sanctions.”
The trial court subsequently conducted a hearing on Luu's motions, but with an expanded scope. At the outset, the court clarified the scope of the hearing as follows: “The scope of this hearing will be limited to the alleged breach related to transfer of data to the server, and if there is a breach of the MSA, to the extent that [Luu] want[s] to argue that the servers in question were community property.... [¶] This hearing will also encompass the financial issues raised by [Avritch]....” Luu, Avritch, and Mkrtchyan testified at the hearing.
The court issued a proposed statement of decision, to which both parties filed responses and/or objections. The court then issued its final statement of decision, in which it concluded (1) Avritch substantially complied with all provisions of the judgment of dissolution; (2) the disruption to Inside Stores's business was caused by Luu's failure to ensure Inside Stores was fully backed up on her own computer equipment or take any steps to ensure a backup after the IS server crashed; (3) the R510 and R410 servers were Avritch's separate property and were not material assets; and (4) Luu breached the MSA by failing to make all equalizing payments, failing to pay the balance on certain credit cards designated under the MSA for repayment, and failing to cover Avritch's health insurance. In addition to ordering Luu to immediately pay these amounts, the court also imposed $85,000 in sanctions pursuant to section 271. The court noted it “repeatedly cautioned [Luu] that the relief she pursues is beyond that required under the terms of the Judgment, and provided notice that it would impose sanctions. The Court finds that she has frustrated efforts to settle the matter and reduce the costs of litigation.” Luu timely appealed.
II. DISCUSSION
On appeal, Luu raises various arguments based on Avritch's assertion the R510 and R410 servers are his separate property and his decision to terminate Inside Stores's access to those servers. Specifically, she claims the servers are community property, Avritch breached his fiduciary duties by failing to disclose the servers, and Avritch breached the MSA by terminating Inside Stores's access to those servers. Luu also asserts the trial court erred by imposing sanctions on her. In response, Avritch opposes Luu's substantive claims and raises two procedural challenges to her appeal. He asserts she forfeited her claims on appeal and is barred from raising new claims on appeal. We first address Avritch's procedural challenges before addressing the substance of the appeal.
A. Procedural Challenges to Appeal
As a preliminary matter, Avritch raises two challenges to the scope of Luu's appeal. First, he contends Luu forfeited the issues raised on appeal by limiting the scope of her appeal to three categories identified on her “Notice Designating Record on Appeal, ” Judicial Council form APP-003 (APP-003). Second, Avritch argues Luu raises new issues on appeal. We conclude Luu waived her force majeure clause argument by failing to raise it before the trial court. In all other respects, however, we conclude Avritch's procedural challenges lack merit.
1. Forfeiture
Avritch asserts Luu's appeal must be limited to three categories identified on the APP-003: (1) “constructive fraud and overreaching by [Avritch]”; (2) “negligent misrepresentation by [Avritch]”; and (3) “[d]uress and undue influence by [Avritch].” He asserts Luu's arguments regarding sanctions, the characterization of the disputed property, the proper interpretation of the MSA and TOA, and the set-aside of the MSA are thus beyond the scope of her appeal.
California Rules of Court, rule 8.130(a)(2) provides: “If the appellant designates less than all the testimony, the notice must state the points to be raised on appeal; the appeal is then limited to those points unless, on motion, the reviewing court permits otherwise.” Here, the APP-003 designates the transcripts for the first two days of trial. However, the parties stipulated to augment the record to include the transcript from the remaining third day of trial. Accordingly, all trial testimony was designated and submitted as part of the record on appeal, and we reject Avritch's forfeiture argument. (See Cox v. Griffin (2019) 34 Cal.App.5th 440, 448 [rejecting forfeiture argument when amended APP-003 designated missing transcripts]; see also Department of Industrial Relations v. Nielsen Construction Co. (1996) 51 Cal.App.4th 1016, 1023-1024 [“ ‘The strong public policy in favor of hearing appeals on the merits operates against depriving an aggrieved party or attorney of a right to appeal because of noncompliance with technical requirements.' ”].)
On April 29, 2021, Luu filed a motion to augment the record to amend her APP-003 form to include additional issues to be raised on appeal. However, California Rules of Court, rule 8.130(a)(2) is inapplicable because all trial testimony was included as part of the appeal. Accordingly, Luu is not limited to those categories listed in paragraph No. 7.b. of the APP-003, and her motion to augment is moot.
2. New Arguments on Appeal
Next, Avritch asserts that because none of the topics identified in Luu's APP-003 were argued before the trial court, all of her arguments must be stricken. He further contends her claim regarding constructive fraud is currently pending before the trial court, and she did not argue force majeure or inability to pay sanctions in the trial court. Luu does not respond to this argument.
In general, a party must first raise issues in the trial court in order to raise them on appeal. (Johnson v. Greenelsh (2009) 47 Cal.4th 598, 603.) “The general rule against new issues is subject to an exception that grants appellate courts the discretion to address questions not raised in the trial court when the theory presented for the first time on appeal involves only a legal question determinable from facts that are (1) uncontroverted in the record and (2) could not have been altered by the presentation of additional evidence.” (Esparza v. KS Industries, L.P. (2017) 13 Cal.App.5th 1228, 1237-1238.)
Luu's appellate brief raises various arguments regarding the ownership of the R510 and R410 servers, Avritch's duty to disclose his alleged ownership of the servers, and the validity of the MSA based on the alleged nondisclosure of these servers. These issues were argued before the trial court and thus are not new issues on appeal.
Luu also challenges the appropriateness of sanctions imposed against her by the trial court. Her closing argument asserted the trial court failed to comply with the statutory requirements for issuing sanctions. Luu argued sanctions under section 271 were inappropriate because her arguments were meritorious and sanctions would impose an undue financial burden. Accordingly, her arguments regarding the appropriateness of sanctions are properly before this court.
The closing argument brief submitted to this court is unsigned and is not a file-stamped copy. However, Avritch stipulated to its inclusion in the record before this court, and we thus interpret his stipulation as an acknowledgement that the closing argument is an accurate copy of the brief filed with the trial court.
However, Luu does not assert she raised a force majeure clause argument before the trial court. Nor are we aware of Luu previously asserting such an argument. Accordingly, that portion of her argument is waived on appeal because it requires factual determinations regarding the impact of COVID-19 on her business. (See Esparza v. KS Industries, L.P., supra, 13 Cal.App.5th at pp. 1237-1238; see also Guthrey v. State of California (1998) 63 Cal.App.4th 1108, 1115 [“As a general rule, ‘[t]he reviewing court is not required to make an independent, unassisted study of the record in search of error or grounds to support the judgment.' ”].)
B. Distribution of the R510 and R410 Servers
At trial, Avritch acknowledged the R510 and R410 servers were not specifically listed or distributed in the MSA or TOA. Luu argues the trial court erred in concluding the servers were Avritch's separate property because the servers were gifted based on services Avritch provided to Du Molin during the parties' marriage and the R510 server was used as a community property asset. Luu further argues the trial court erred in holding Avritch was not required to disclose the servers during the MSA negotiations because he had certain disclosure obligations and the value of the servers was not immaterial.
“[W]e review the trial court's factual findings regarding the character and value of the parties' property under the substantial evidence standard.” (In re Marriage of Sivyer-Foley & Foley (2010) 189 Cal.App.4th 521, 526.)
1. Whether the R510 and R410 Servers are Avritch's Separate Property
The trial court concluded the R510 and R410 servers were gifted after the parties' separation and thus were presumptively separate property. It rejected Luu's arguments to the contrary.
Luu notes property acquired during marriage is community property and asserts the R510 and R410 servers were gifted to Avrich based on his skills and services provided during marriage. Here, substantial evidence supports the trial court's conclusion that the R510 and R410 servers were gifted after the parties' separation. The parties separated in September 2016, and Avritch testified the servers were gifted to him in the “fourth quarter” of 2016. While Luu testified the servers were gifted around June 2016, the court found Avritch to be “more credible” than Luu. (See In re S.A. (2010) 182 Cal.App.4th 1128, 1149 [“ ‘ “it is the exclusive province of the trial judge or jury to determine the credibility of a witness and the truth or falsity of the facts upon which a determination depends”' ”].)
Likewise, substantial evidence supports the trial court's holding that the gift was unrelated to services provided during the parties' marriage. Both Avritch and Mkrtchyan testified the R510 and R410 servers were from a project they worked on for Du Molin in 2014. When that project was completed, Avritch requested that Mkrtchyan remove the R510 and R410 servers, Mkrtchyan did so, and he kept them in his possession. Avritch continued working for Du Molin until early 2016. The evidence thus indicates the R510 and R410 servers were gifted over six months after Avritch stopped working for Du Molin, were from a project Avritch completed approximately two years prior to the gift, and had been stored without use since that time. Accordingly, substantial evidence supports the trial court's finding that the gift was unrelated to services performed by Avritch during the parties' marriage.
Luu next asserts the R510 server should be considered community property because it was used for the benefit of a community property asset-i.e., Inside Stores. A party may transmute separate property of one spouse to community property. (§ 850, subd. (b).) However, “[a] transmutation of real or personal property 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).) Here, Luu does not identify any such agreement that would transmute the character of the R510 server from Avritch's separate property to community property. Accordingly, no transmutation occurred.
2. Duty to Disclose Separate Property
Luu next argues, regardless of the characterization of the servers, Avritch had a duty to disclose the existence of the servers and his claim to them as part of the MSA negotiations. She contends the servers were not immaterial assets, and Avritch's failure to do so constitutes fraud and justifies setting aside the MSA.
Luu cites various authorities for the proposition that a spouse breaches his or her fiduciary duty by concealing community property. These authorities are distinguishable because, as explained above, the R510 and R410 servers are Avritch's separate property. Accordingly, the relevant inquiry is the scope of Avritch's duty to disclose separate property.
Section 2100, subdivision (c) requires parties to provide “a full and accurate disclosure of all assets and liabilities in which one or both parties have or may have an interest must be made in the early stages of a proceeding for dissolution of marriage or legal separation of the parties, regardless of the characterization as community or separate, together with a disclosure of all income and expenses of the parties. Moreover, each party has a continuing duty to immediately, fully, and accurately update and augment that disclosure to the extent there have been any material changes so that at the time the parties enter into an agreement for the resolution of any of these issues, or at the time of trial on these issues, each party will have a full and complete knowledge of the relevant underlying facts.”
“To implement the disclosure obligation, the Family Code requires the service of a preliminary and final declaration of disclosure ‘[i]n order to provide full and accurate disclosure of all assets and liabilities in which one or both parties may have an interest....' (§ 2103.) Specifically, ‘[t]he preliminary declaration of disclosure shall set forth with sufficient particularity,' to the extent that ‘a person of reasonable and ordinary intelligence can ascertain [them],' ‘[t]he identity of all assets in which the declarant has or may have an interest and all liabilities for which the declarant is or may be liable, regardless of the characterization of the asset or liability as community, quasi-community, or separate.' (§ 2104, subd. (c)(1).)” (In re Marriage of Feldman (2007) 153 Cal.App.4th 1470, 1476-1477.)
The trial court concluded disclosure of the servers was not material because the two servers were “only worth an estimated $5,000” and characterized as “ ‘very old.' ” Luu disputes this characterization and argues the value of servers was not immaterial because they were worth $40,000 at the time of the gift, and the trial court failed to consider their value in light of the Inside Stores business's reliance on the R510 server.
We need not resolve whether the servers were material so as to trigger Avritch's disclosure obligations and justify setting aside the MSA. Even accepting Luu's position that the R510 and R410 servers were material assets, she must also establish that “the facts alleged as the grounds for relief materially affected the original outcome and that the moving party would materially benefit from the granting of the relief.” (§ 2121, subd. (b).) Here, Luu has failed to demonstrate Avritch's failure to list the R510 and R410 servers on his disclosure documents materially affected the original outcome. The record contains substantial evidence that Luu had actual notice of Avritch's claim to certain servers as his separate property.
First, paragraph No. 4 of the TOA expressly states Inside Stores owns only one server colocated at Multacom. Paragraph No. 13 then provides that Inside Stores “shall permit and encourages AVRITCH to co-locate his server(s) at Multacom alongside the Inside Stores server(s)..., provided that such does not increase the monthly co-location contract cost to Inside Stores.” (Italics added.) The only reasonable interpretation of paragraph 13 is that Luu recognized certain servers were Avritch's separate property. And Luu testified to her understanding of paragraph No. 13 as follows: “I would have backup support in exchange for me hosting his server.”
At the time the parties executed the MSA and TOA, the IS server was still operational and able to support Inside Stores if Avritch had immediately removed his servers. When the IS server fatally crashed, it was approximately two years postdissolution. And, because the R510 server was colocated with the IS server, the R510 server performed the task identified in paragraph No. 13 of the TOA-namely, “quicker recovery and a wider variety of recovery options (i.e. technical assistance, alternate server availability) in the event of a catastrophic server failure.” Inside Stores business did not halt in November 2019, but was able to continue operating by relying on the R510 server and eventually the R410 server as a backup. Unfortunately, at that time Luu did not employ another manner of backing up her business apart from using Avritch's servers, and no plan was in place when Avritch opted to utilize his servers for his own business. The language of paragraph No. 13, which “encourages” Avritch to colocate his servers at Multacom, intrinsically recognized the possibility that Avritch would not maintain his servers at Multacom and/or the servers would not be available to assist Inside Stores.
Second, when the IS server suffered a total failure in 2019, Mkrtchyan was involved in resolving the issue by ensuring operations continued on the R510 server and employing the R410 server as a backup system. As her employee, Mkrtchyan presumably updated Luu on the steps taken to back up Inside Stores. Luu testified she saw e-mail exchanges between Mkrtchyan and Avritch regarding the work done at that time to the servers.
Finally, Luu acknowledges she would write checks for purchases on behalf of Inside Stores. However, Luu was unable to say how many server purchases she authorized or paid for. Luu also was unable to state who she thought owned the backup server when questioned about it. While Luu disputes the trial court's statement that she should have known the R510 and R410 servers belonged to Avritch, both the language of the TOA and multiple events should have alerted her to the fact. Accordingly, substantial evidence demonstrates any alleged nondisclosure by Avritch did not materially alter the MSA or TOA and does not justify setting aside the judgment.
Luu argues her request for set-aside under section 2122 was timely. We do not need to resolve this issue because we conclude there was no basis for granting Luu's request to set aside the judgment.
C. Breach of the MSA
In addition to Avritch's alleged disclosure obligations, Luu separately asserts Avritch breached the MSA by failing to provide a backup server for three years. The terms of the MSA and TOA dictate this claim. “The interpretation of a contract is subject to de novo review where the interpretation does not turn on the credibility of extrinsic evidence.” (Morgan v. City of Los Angeles Bd. of Pension Comrs. (2000) 85 Cal.App.4th 836, 843.) “[W]here... the extrinsic evidence is not in conflict, construction of the agreement is a question of law for our independent review.” (Appleton v. Waessil (1994) 27 Cal.App.4th 551, 556.) If extrinsic evidence is in conflict and requires resolution of credibility issues, we apply the substantial evidence test. (Ibid.)
“The fundamental rules of contract interpretation are based on the premise that the interpretation of a contract must give effect to the ‘mutual intention' of the parties.” (Waller v. Truck Ins. Exchange, Inc. (1995) 11 Cal.4th 1, 18.) “The language of a contract is to govern its interpretation, if the language is clear and explicit, and does not involve an absurdity.” (Civ. Code, § 1638.) “When a contract is reduced to writing, the intention of the parties is to be ascertained from the writing alone, if possible....” (Id., § 1639.) “The whole of a contract is to be taken together, so as to give effect to every part, if reasonably practicable, each clause helping to interpret the other.” (Id., § 1641.) “A contract must receive such an interpretation as will make it lawful, operative, definite, reasonable, and capable of being carried into effect, if it can be done without violating the intention of the parties.” (Id., § 1643.)
As discussed in part II.B.2., ante, paragraph No. 13 of the TOA allows Avritch to colocate his servers at Multacom alongside the IS server. Nothing in the provision obligates him to do so. The language of that paragraph, which merely “encourages” Avritch to colocate his servers with the IS server, reemphasizes that maintaining his servers at Multacom is not mandatory. Accordingly, if Avritch was not required to store his servers at Multacom, paragraph No. 13 could not reasonably be interpreted as requiring him to provide backup via his servers at Multacom.
Luu cites to an e-mail exchange between the parties in February 2019 as evidence of Avritch's obligation. In that e-mail, Avritch labeled a section, “Ultimate backup person, ” and stated, “I will never let you down, ” “my plan is to keep on doing this for you for a long time, ” and “I have your back on Inside Stores.” However, these statements do not alter the actual terms of the MSA and TOA. The MSA and TOA specifically provide their respective terms set forth the entire agreement between the parties. Moreover, the MSA provides it “may not be amended... except by an instrument in writing, signed by each of the Parties.” Luu has not cited any authority to suggest the e-mail is a valid amendment of the terms of the MSA and TOA. Nor has she cited any authority to suggest the e-mail constitutes a new oral contract between the parties. (Cal. Rules of Court, rule 8.204(a)(1)(B) & (C) [parties must support each point with argument, citations to the record and, if possible, authority]; Allen v. City of Sacramento (2015) 234 Cal.App.4th 41, 52 [“we may treat the point as forfeited and pass it without consideration” when legal argument not supported by citation to legal authority].)
D. Sanctions
Section 271 authorizes the trial court to award attorney fees and costs based “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.” (§ 271, subd. (a).) “ ‘The imposition of sanctions under section 271 is committed to the sound discretion of the trial court. The trial court's order will be upheld on appeal unless the reviewing court, “considering all of the evidence viewed most favorably in its support and indulging all reasonable inferences in its favor, no judge could reasonably make the order.”' ” (Sagonowsky v. Kekoa (2016) 6 Cal.App.5th 1142, 1152.)
Luu challenges imposition of sanctions on the basis that her litigation was brought in good faith after attempting to mediate the dispute, and the trial court disregarded Avritch's refusal to comply with its two ex parte orders. We find no merit in these arguments. First, the parties offered contradictory testimony regarding Avritch's willingness to mediate. As previously noted, the court found Avritch to be “more credible” than Luu and thus may have concluded litigation was not the sole option available to Luu. (See In re S.A., supra, 182 Cal.App.4th at p. 1149.) Second, Luu failed to submit an adequate record as to her ex parte motions. Notably, Luu did not include her motions with the record submitted to this court. Because it is Luu's burden to provide an adequate record on appeal showing error, the consequence for these inadequacies falls squarely upon her. (See Foust v. San Jose Construction Co., Inc. (2011) 198 Cal.App.4th 181, 186-187.) Moreover, we note the trial court stayed the ex parte orders.
Luu also asserts section 271 does not support sanctions because the trial court was required to consider her assets and determine whether the sanctions would constitute a financial burden.
Section 271, subdivision (a) requires the court to “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.” Here, the only evidence at the hearing appears to indicate an inability by Luu to pay such sanctions. For example, Luu testified she did not have funds to purchase a $7,000 server when the IS server totally failed, and she had to ask her brother to “borrow a credit card” for her to utilize. She also testified she stopped paying Avritch under the MSA because she “ha[d] no money to pay” him. Luu testified she had to take out approximately $200,000 in loans to support Inside Stores, borrow money to cover her taxes, and currently has outstanding debt of approximately $500,000. Luu also testified that Inside Stores was financially struggling. She noted sales were significantly lower than prior years, she “ha[s]n't been able to pay bills for a long time, ” “vendors... cut me off because I couldn't pay, ” and she spent a lot of money trying to fix the Inside Stores websites.
Luu's opening brief argues she submitted an “FL 150 income” statement to the court, which indicated her lack of assets and had utilized “the last of her SEP-IRA account.” However, neither the “FL 150 income” statement nor this fact appear to be part of the record. “We cannot consider facts that are not supported by the record, and therefore decline to mention or address those events.” (Dhawan v. Biring (2015) 241 Cal.App.4th 963, 967, fn. 7.)
While the court heard testimony regarding the success of the business in 2019 and could review the assets subject to the parties' 2017 MSA, this evidence does not reflect Luu's current income and assets. (§ 271, subd. (a).) Accordingly, we vacate that portion of the order imposing sanctions of $85,000 in attorney fees and remand this issue to the trial court to assess whether such sanctions would constitute an unreasonable financial burden on Luu.
III. DISPOSITION
We hereby vacate that portion of the order imposing sanctions of $85,000 in attorney fees, with directions that the trial court assess whether such an order would impose an unreasonable financial burden on Luu. In all other respects, we affirm the order. The parties shall bear their own costs on appeal. (Cal. Rules of Court, rule 8.278(a)(3).)
WE CONCUR: Humes, P. J., Banke, J.