Opinion
D071870
06-01-2018
In re the Marriage of EILEEN CATI and DOUGLAS JOHN NAIL. EILEEN CATI NAIL, Respondent, v. DOUGLAS JOHN NAIL, Appellant.
Stephen Temko and Dennis Temko for Appellant. Niddrie Addams Fuller and Victoria E. Fuller for Respondent.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.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. DN144994) APPEAL from an order after judgment of the Superior Court of San Diego County, William Y. Wood, Commissioner. Affirmed. Stephen Temko and Dennis Temko for Appellant. Niddrie Addams Fuller and Victoria E. Fuller for Respondent.
INTRODUCTION
Douglas John Nail (Husband) appeals an order after judgment denying his request for an order seeking foreclosure on a residence to enforce the terms of a marital dissolution judgment whereby he was to receive an equalization payment of $100,000 plus interest. Eileen Cati Byrne (formerly Eileen Cati Nail) (Wife) opposed Husband's request and asserted the amount owed to Husband is offset by damages Husband caused to the residence during his occupancy, loss of a vacant property awarded to her by the marital settlement agreement based on Husband's failure to transfer ownership and failure to pay property taxes, and losses Wife incurred when her bank account was garnished to pay hospital bills owed by Husband. The court denied the request to enforce the judgment finding both Husband and Wife came to court with unclean hands because neither was innocent of wrongdoing, delay, or unfair conduct related to the marital dissolution.
Husband contends on appeal the court erred in applying the unclean hands doctrine because it was not pleaded or argued as a defense. He also contends the court erred in its alternative finding that, even if the judgment were enforceable, the parties' claims offset each other. We disagree with both contentions and affirm the order.
"We will use the word 'offset,' although we do not differentiate between the words 'offset' and 'setoff' in the various authorities cited." (McMillin Companies, LLC v. American Safety Indemnity Co. (2015) 233 Cal.App.4th 518, 526, fn. 7.)
BACKGROUND
A
Husband purchased the property at issue before his marriage to Wife. Husband and Wife were married in December 1999. They separated in late 2006 or early 2007. Wife stated the property was in perfect condition when she moved out of the property on April 3, 2007.
The parties reached a stipulated settlement agreement in August 2009, pursuant to which they entered a stipulated judgment of dissolution. Wife received the property, the title of which was already in Wife's name alone. The parties agreed Wife would give Husband a note for a $100,000 equalization payment secured by a second deed of trust against the property plus interest at the rate of 5 percent per annum from September 2009. The entire amount was due and payable in full on September 30, 2014. Husband was to transfer to Wife all right, title and interest in a vacant lot attached to the property, which was in Husband's name. Husband was also to hold Wife harmless for any medical bills existing for medical care received by Husband from Scripps Memorial Hospital (Scripps).
Wife never signed a second deed of trust securing Wife's note. Wife's attorney sent correspondence to Husband's counsel stating Wife's attorney was not authorized to release the deed of trust until Husband signed an interspousal transfer deed for the vacant lot, brought current with overdue property taxes on the lot, and paid the Scripps debt.
B
In December 2014, Husband filed a request for an order allowing foreclosure on the property pursuant to the terms of the judgment because Wife had not paid the $100,000 equalization payment plus interest. Wife filed a response contending she was entitled to offsets of the obligation based on (1) waste of the property committed by Husband, (2) the loss to foreclosure of the vacant lot, and (3) failure of Husband to pay the Scripps medical bill resulting in seizure of Wife's bank account.
Wife stated she did not take action against Husband earlier regarding the damage to the home or the seizure of her bank account because she was afraid of Husband and she thought she had an offset under the terms of the agreement. Husband admitted he is a convicted felon who served time in prison. He told wife he stabbed a man to death in Mexico. Husband left Wife a note saying he was going to destroy her existence and her real estate career. She referred to him as a "very, very frightening man" who had shotguns and rifles. She testified the only reason she was in court was because he was suing her.
1
Husband exclusively occupied the property after Wife moved out until September 30, 2009. Husband was to pay for any waste committed on the property.
Wife was allowed two inspections of the property. The first limited inspection noted a number of issues such as water damage to patio framing and patio steps, heating ducts, toilet flush valve, light switches in the kitchen, a refrigerator water leak, holes cut into drywall for plumbing repair, aging exterior siding, and wooden doors with fungus or termite damage. Husband did not allow Wife's contractor access to inspect the property in September 2009 before Husband moved out. In October, the same company that did the first inspection conducted a second inspection noting the range oven was now operational, but the previous items were still present and there were new issues such as four additional leaking thermal window panes, the steam generator for the master bedroom shower was missing, and the doorbell was not working.
Wife testified she took pictures when she was allowed back into the property. She claimed there were holes in the walls and ceiling, the baseboards were destroyed, there was damage to the exterior siding, and doors were damaged with holes kicked in the bottoms. Wife testified the flooring in the pool cabana was ripped out and there was damage to the wall. She also testified a dead skunk was dropped in a hole in a bathroom wall.
There were stains in the upstairs master bedroom, which appeared to be Husband's name signed in urine. There were cigar burns on the counter tops. A cabinet used to hold electronic components was filled with rat feces.
Wife testified she could not live in the home for three months until things were repaired. Wife sought $216,566.49 for expenses incurred for the repairs and the mortgage payment for three months.
Husband denied intentionally damaging the property. A friend of Husband testified she was at a going-away party the night before Husband moved out and the house was in good shape. There were some deferred maintenance items, but overall the home looked great. Husband's girlfriend also testified everything was in working condition when Husband moved out.
2
Husband never transferred the vacant lot to Wife. Husband stopped paying property taxes on the lot in August 2006. Husband did not pay property taxes after the settlement, even after Wife's attorney advised him the taxes were delinquent. The lot was lost to a property tax foreclosure. Husband stated he did not pay the property taxes on the lot because Wife refinanced the house in her name. Wife testified she was unaware the taxes were delinquent on the property when they entered the marriage settlement agreement. Husband did not tell Wife he had not paid taxes on the lot for three years.
A real estate appraiser testified the vacant lot was capable of being developed and the fair market value of the property was $275,000. Even if the property were determined to be landlocked, the fair market value of the property would be $137,500.
3
Under the settlement agreement, Husband was to hold Wife harmless for any medical bills existing for medical care he received from Scripps for a motorcycle accident. Husband did not pay the bill and Wife's bank account was seized to satisfy the debt. Wife never received treatment in the Scripps health system.
C
After the parties submitted written closing arguments, the court issued a lengthy statement of findings and order. The court summarized the evidence and the arguments presented by the parties.
The court found, "[a]lthough the evidence in the case supports allegations of waste and damages to the property during Husband's occupancy, Wife has submitted quotes and receipts so poorly organized and documented that the court is unable to correlate the receipts for repair with her photo-documentation of the repairs she paid. It is as if Wife threw every receipt she received for the past seven years into a drawer, added it all up, and then asked for reimbursement." The court found insufficient documentation to sustain Wife's claim for $216,566.49 in reimbursement.
The court noted the vacant lot was in Husband's name alone and he was required to sign an interspousal transfer deed. He neither signed a deed nor paid delinquent taxes on the lot. Without Wife's knowledge, the lot was sold to a third party for unpaid property taxes. Wife became aware of the sale on default about a year later. The court found reliable the testimony from Wife's appraiser, who valued the lot at $137,500, even if the lot were not buildable. The court also noted Husband's ability to encumber the lot with a $100,000 note for Husband's bail bond showed evidence the lot had substantial value. The court commented Husband agreed to resolve the conveyance of the lot at the time the judgment was entered, but he failed to do so. Additionally, he did not update Wife about the status of the tax delinquency or forward notices to Wife about the sale of the defaulted property.
With respect to the debt to Scripps, the court determined "there is no disagreement that Husband incurred the expense and was responsible for the obligation" pursuant to the judgment. "There is also no disagreement that Wife's bank account was levied to satisfy the expense."
The court declined to enforce the provisions of the settlement agreement as requested by either party. The court found both parties came to court "with unclean hands and are barred from enforcing the [j]udgment. Neither party is innocent of wrongdoing, delay or unfair conduct relating to the subject matter of their respective claims."
The court further stated, "[a]lternatively, if the court were to enforce the [j]udgment as requested by the parties, the court finds the parties' respective requests off-set each other resulting in neither party owing the other."
The court found neither party was entitled to an award of attorney fees as sanctions under Family Code section 271 and ordered each party to pay their own attorney fees and costs.
DISCUSSION
I
Husband first contends the court erred in applying unclean hands to deny enforcement of the judgment and Husband's claim for the equalization payment because the defense was not raised by Wife in her responsive pleading and was not the subject of briefing or argument. We disagree.
" 'Family law court is a court of equity. [Citation.]' [Citation.] 'Those who seek equity, must do equity and have "clean hands." [Citation.]' [Citation.] 'Family law cases "are equitable proceedings in which the court must have the ability to exercise discretion to achieve fairness and equity." ' " (In re Marriage of Boswell (2014) 225 Cal.App.4th 1172, 1174-1175.)
"One who comes into equity must come with clean hands." (13 Witkin, Sum. Cal. Law (11th ed.) Equity, § 9, p. 283.) "The doctrine demands that a plaintiff act fairly in the matter for which he seeks a remedy. He must come into court with clean hands, and keep them clean, or he will be denied relief, regardless of the merits of his claim." (Kendall-Jackson Winery, Ltd. v. Superior Court (1999) 76 Cal.App.4th 970, 978 (Kendall-Jackson).) " ' "[W]henever a party, who, as actor, seeks to set the judicial machinery in motion and obtain some remedy, has violated conscience, or good faith, or other equitable principle, in his prior conduct, then the doors of the court will be shut against him ...; the court will refuse to interfere on his behalf, to acknowledge his right, or to award him any remedy." ' " (Katz v. Karlsson (1948) 84 Cal.App.2d 469, 474-475.)
" 'The doctrine of unclean hands requires unconscionable, bad faith, or inequitable conduct by the plaintiff in connection with the matter in controversy. [Citations.] Unclean hands applies when it would be inequitable to provide the plaintiff any relief, and provides a complete defense to both legal and equitable causes of action.' [Citation.] The plaintiff's misconduct must be of such a prejudicial nature that it would be unfair to grant him the relief he seeks in court." (Bank of America, N.A. v. Roberts (2013) 217 Cal.App.4th 1386, 1400 (Bank of America, N.A.).)
"Whether the doctrine of unclean hands applies is a question of fact." (Kendall-Jackson, supra, 76 Cal.App.4th at p. 978.) " 'The decision of whether to apply the defense based on the facts is a matter within the trial court's discretion.' " (Bank of America, N.A., supra, 217 Cal.App.4th at p. 1400.)
Husband relies upon Behm v. Fireside Thrift Co. (1969) 272 Cal.App.2d 15, 21 (Behm) for the proposition it would be unfair to apply the unclean hands doctrine without affording Husband the opportunity to meet the claim and present evidence on the issue. In Behm, the plaintiff sought reformation of an inaccurately drawn subordination agreement based upon mutual mistake. (Id. at pp. 20-21.) The Brehm court determined the conduct at issue was not " 'flagrantly unconscionable.' " (Id. at p. 21.) Further, the Behm court decided the doctrine could not deprive the party who was brought into the court of a legal defense. "[T]he 'clean hands' doctrine operates only against one who seeks active intervention of the court and should not be applied to a defendant who is not voluntarily seeking relief in equity but was merely brought there at the suit of another." (Id. at p. 22.)
Unlike in Behm, the conduct of the parties and whether they acted inequitably or in bad faith was at issue throughout this case. In opposing Husband's request for foreclosure, Wife contended Husband intentionally damaged the residence, refused to transfer title to the vacant lot to her as required by the settlement agreement, stopped paying taxes on the lot resulting in loss to foreclosure, and "fraudulently gave the hospital collection agency" Wife's bank account and Social Security number resulting in garnishment of her bank account for his medical bills.
Husband disputed these claims during trial. He denied damaging the property. He challenged Wife's credibility and her accounting for repairs. He contended Wife's attorney never sent a quitclaim deed for the vacant lot and Wife, as a real estate agent, should have been aware of the outstanding taxes on the vacant lot and failed to mitigate her losses by paying the taxes. He also contended the lot had no value. Husband further contended he did not incur the medical bills and Wife failed to disclose the Scripps debt to Husband.
The court found Wife's testimony credible on the issue of waste and did not find the testimony of Husband or his witnesses credible. The court specifically found, "Husband's request that the court enforce the equalization payment lacks good faith and rewards him for his wrongdoing. Through direct correspondence with Wife's counsel, he was afforded an opportunity to perfect the very [j]udgment enrolled by the court upon his own motion. He ignored the [j]udgment, he ignored the provisions for Wife to secure the equalization payment, and he ignored his responsibility to convey the ... lot to Wife. Therefore, the provision of the [j]udgment requiring Wife to secure the equalization payment with a second trust deed against the ... property is unenforceable and Husband's claim for the equalization payment ... is similarly unenforceable. Husband cannot attach value to the [vacant] lot when it suits his purposes (like securing a permit to build a residence or secure a bail bond), and then claim that the property has no value whatsoever."
The court denied Wife's request for damages stating, "Wife permitted a [j]udgment to be enrolled while at the same time knowing that she intended to request offsets for disputed damages to the property if Husband ever requested his equalization payment. Moreover, even after learning that the [vacant lot] had been lost to foreclosure in 2012, she did not bring an affirmative claim for relief including one for damages until Husband requested his equalization payment."
Therefore, although neither party specifically raised the issue of unclean hands in the pleadings, we conclude there was substantial evidence to support the court's finding of inequitable or bad faith conduct, issues the court necessarily weighed and determined based on the issues raised by the parties. "[T]he supposed requirement of special pleading is only a rule of good practice. The policy against granting relief to a wrongdoer connected with the transaction or subject matter is much stronger than that which opposes relief to one whose claim is merely stale. A court, discovering the facts of unclean hands, needs no original or amended pleading to justify its refusal to grant relief to the plaintiff." (5 Witkin, Cal. Proc. (5th ed.) Plead. § 1126.) "If the record shows upon its face that the moving party has failed to act in good faith with the court, that is, has instituted a proceeding or motion with unclean hands, it is the duty of a reviewing court in the interest of justice to determine the propriety of the judgment, decree or order of the trial court." (Katz, supra, 84 Cal.App.2d at p. 473.) We conclude the court did not abuse its discretion in applying the unclean hands doctrine to the parties' competing requests.
II
Husband contends the court's alternative conclusion that the parties' claims offset each other was not supported by the court's findings and he is entitled to a judgment for the difference between his equalization claim and the amount he concedes he owed for the Scripps bill. We disagree.
Wife asserted in her responsive pleading a defense of offset based upon the terms of the settlement agreement. Code of Civil Procedure section 431.70 provides, "Where cross-demands for money have existed between persons at any point in time when neither demand was barred by the statute of limitations, and an action is thereafter commenced by one such person, the other person may assert in the answer the defense of payment in that the two demands are compensated so far as they equal each other, notwithstanding that an independent action asserting the person's claim would at the time of filing the answer be barred by the statute of limitations." This statute "does not create a substantive right to raise setoff as a defense to a claim for monetary relief, but merely describes the procedures to be followed in raising this defense." (Granberry v. Islay Investments (1995) 9 Cal.4th 738, 744.) Entitlement to offset depends on the factual and legal context of the case.
Here, the court found Husband committed waste and damage to the residence during Husband's occupancy. The court reviewed over 200 quotes and receipts submitted by Wife. Although the court could not substantiate Wife's claim for $216,566.49 due to poor documentation, the court was well within its discretion to draw inferences and conclusions that there was some value to the damage caused by Husband. (Bowers v. Bernards (1984) 150 Cal.App.3d 870, 873-874 ["When a trial court's factual determination is attacked on the ground that there is no substantial evidence to sustain it, the power of an appellate court begins and ends with the determination as to whether, on the entire record, there is substantial evidence, contradicted or uncontradicted, which will support the determination, and when two or more inferences can reasonably be deduced from the facts, a reviewing court is without power to substitute its deductions for those of the trial court"].)
The court also found there was reliable testimony from Wife's real estate appraiser that the value of the vacant lot was $137,500. The court found this valuation was substantiated by the fact Husband was able to obtain a $100,000 note secured by the lot when he needed a bail bond nearly two decades before the judgment. The court declined to award Wife damages pursuant to Family Code section 1101, subdivisions (g) or (h) because the statute, which provides for remedies for breach of fiduciary duty by a spouse impairing an interest in community property, contemplates remedies prior to judgment whereas the motion for enforcement in this case was a postjudgment proceeding. However, this did not preclude the court from considering the value of the property lost to foreclosure for purposes of an offset.
Finally, Husband does not dispute there was evidence to support the court's finding Husband incurred and was responsible for the Scripps obligation, resulting in garnishment from Wife's bank account of $2,942.13. With 10 percent interest, the court determined this obligation amounted to $4,029.51 as of June 30, 2016.
There was substantial evidence to support the court's alternative finding Wife's claims offset Husband's claim for equalization payment of $100,000 plus 5 percent simple interest, which as of July 15, 2016 was approximately $129,000. As a result, Husband has not established he is entitled to judgment in any amount.
DISPOSITION
The order is affirmed. Each party to bear their own costs on appeal.
MCCONNELL, P. J. WE CONCUR: HUFFMAN, J. HALLER, J.