Opinion
A150901
06-29-2018
NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (Marin County Super. Ct. No. FL 1005583)
I. INTRODUCTION
Chyah and Jeffrey Weitzman dissolved their marriage in December 2011. This appeal pertains to a post-judgment dispute about a term in the Weitzmans' marital settlement agreement (MSA) that requires Jeffrey to make an annual bonus spousal support payment to Chyah, which corresponds to a percentage of his annual gross income. In 2016, Chyah challenged the method Jeffrey had used to calculate his bonus support payments for the years from 2012 through 2015, claiming he violated the MSA by excluding necessary business expenses from his gross income calculation.
For clarity, we refer to the parties by their first names.
The trial court found that the term "gross income" in the parties' MSA does not include necessary business expenses, but also found that Jeffrey had underpaid Chyah in 2012, and owed a supplemental payment for that year. The court also denied Chyah's request to sanction Jeffrey under Family Code section 271 (section 271) for allegedly violating a mediation provision in the MSA. We affirm the order.
All references to a statute are to the Family Code, unless otherwise indicated.
II. STATEMENT OF FACTS
A. Background
In October 2010, Chyah filed a petition for dissolution of her 21-year marriage to Jeffrey. A judgment of dissolution was filed on December 14, 2011 (the judgment). The terms of the dissolution were set forth in two attachments incorporated into the judgment: (1) a "partial" stipulated judgment; (2) a MSA that was captioned as a "Binding Settlement Memorandum."
The stipulated judgment, which formalized various agreements made at an October 2011 settlement conference, was adopted as a court order on December 14, 2011. The court reserved jurisdiction over several issues that were addressed in the stipulated judgment and all matters that were not expressly addressed. The MSA, executed by the parties on December 2, 2011, settled additional disputes and provided that "the Court may enforce the terms of this Agreement and enter the terms of this Agreement into a Judgment." The final paragraph of the MSA stated: "Except as otherwise agreed, any disputes arising out of the interpretation and/or enforcement of this Agreement shall be submitted to a private mediation process with their mediator, David Sutton, for resolution."
Spousal support obligations were addressed in paragraphs 2 and 3 of the MSA. Jeffrey waived his right to receive support and agreed to pay Chyah spousal support in the amount of $5,500 per month, plus a possible supplemental annual support payment depending on the amount of Jeffrey's annual income. This obligation to pay "bonus" spousal support was described in paragraph 2.B of the MSA, which states: "As additional spousal support, Husband shall pay to Wife twenty-five (25 %) percent of any gross income received by Husband which income exceeds $230,000 and which is less than $300,000. Husband shall make these supplemental spousal support payments to Wife on or before April 1 of each year following the year for which said supplemental payment is due. So, by way of example, the supplemental spousal support payment due for the 2012 tax year shall be payable by Husband to Wife on April 1 of 2013. Husband shall provide wife with any documentation reasonably calculated to provide her with a reliable understanding of Husband's total annual income."
B. The 2016 Dispute over Spousal Support
On July 21, 2016, Chyah's counsel sent a letter via e-mail to Jeffrey's counsel requesting that he "immediately commence mediation" pursuant to the MSA to address the "enforcement of Paragraph 2B concerning bonus spousal support to be paid to Chyah." Chyah's counsel stated that Jeffrey had not paid Chyah 25 percent of his "gross income" in excess of $230,000 for any year between 2012 and 2015, or provided her with sufficient documentation of his actual gross income. She complained that the payments Jeffrey made and documentation he provided showed that he was deducting business expenses from his calculation of his gross income, which was not permissible. Counsel opined that Jeffrey was in contempt of court for his nonpayment of support, and closed by asking for a response to her request for mediation in two days.
On August 8, 2016, Chyah filed a Request for Order (RFO), seeking a judicial determination of the amount of bonus spousal support Jeffrey was required to pay Chyah in the years 2012 through 2015 pursuant to paragraph 2.B of the MSA. She also requested attorney fees on the basis of need, and as a sanction for Jeffrey's alleged violations of the MSA by failing to pay spousal support and/or to participate in mediation to resolve his dispute with Chyah.
In a declaration attached to her RFO, Chyah stated that Jeffrey had refused to provide complete copies of his annual tax returns for 2012 and 2013, and the only reason he provided his 2014 and 2015 returns was to support his own request for sanctions against her in another pending matter. Chyah also stated that Jeffrey's interpretation of the term "gross income" to mean net business income or gross income minus business expenses was inconsistent with their agreement and the judgment. Finally, Chyah claimed she was entitled to attorney fees, first on the basis of need because although her circumstances had improved since the judgment was entered, her earning capacity would never be comparable to the earning capacity of Jeffrey, who is a medical doctor and "consistently earns over $230,000 per year." And second, Chyah stated an attorney fees sanction was appropriate because Jeffrey did not respond to her requests for mediation, and his interpretation of gross income could not be justified.
Jeffrey filed a form "Responsive Declaration" to Chyah's RFO, in which he declined to consent to the order requested by Chyah, and sought sanctions against Chyah. In an attachment, Jeffrey explained that each year since the judgment was entered he complied with his obligation to make an annual bonus support payment to Chyah by calculating the amount of the payment that he thought was due and sending "relevant pages" of his tax returns along with his payment. Jeffrey stated that Chyah accepted his payments without complaint until 2016.
In support of his request for sanctions, Jeffrey stated that in early 2016, he learned that Chyah had purchased a residence, which prompted him to request that she complete a current Income and Expense Declaration. However, Chyah refused to disclose all of her assets despite repeated requests, so Jeffrey filed a motion to compel in late June 2016, and in response to that motion Chyah finally disclosed the value of her retirement assets. The following month, her counsel sent a demand letter for mediation regarding bonus spousal support. By the time Jeffrey received the demand, Chyah's attorney had already contacted the mediator, who billed Jeffrey for that encounter. Jeffrey also received a retainer agreement for the mediator, which required him to pay $3,000. Jeffrey did not agree to spend that much money to mediate a matter that, in his mind, was simply a question of "input and mathematical computations."
In his declaration, Jeffrey addressed the parties' current financial situation. He stated that his income had steadily decreased since the dissolution and, in September 2016, he had filed a request to terminate his spousal support obligation because his income had "severely decreased." He could not afford to purchase a home, most of his estate was retirement, and his spousal support obligation was a burden. Meanwhile, Chyah had secured full time employment, had financial support from her family, had over $800,000 in retirement funds, and had recently purchased a home.
Both parties filed declarations of counsel, which are more accurately described as memoranda of law. Chyah's counsel advocated for a formula for calculating bonus spousal support that defined gross income as all revenue paid to Jeffrey (as reported on his "K1" tax return form) without any deductions or adjustments. Using this formula, counsel determined that there was an arrearage due from Jeffrey (plus statutory interest) for every relevant year, as follows: (2012) $8,264; (2013) $15; (2014) $5,795; (2015) $5,994. Chyah's counsel also argued that Jeffrey's declaration was an admission that he violated the MSA by refusing to participate in mediation. Finally, counsel argued that Chyah had behaved reasonably with respect to Jeffrey's prior request for information about Chyah's income/assets, and his pending request to terminate spousal support.
Jeffrey's counsel argued that Chyah's claim for unpaid bonus support was invalid because gross income does not mean gross revenues, and the parties always intended that gross income would exclude necessary job related expenses. Furthermore, counsel argued, Jeffrey's gross income had decreased since the judgment was entered, when his employment income was from his partnership in California Emergency Physicians, because he now worked part time as an independent contractor due to health issues, and had significant necessary job expenses. Finally, counsel argued that Jeffrey had actually overpaid bonus spousal support because he did not deduct his health insurance premiums from his calculation of gross income, and, therefore, Chyah owed him a refund totaling $4,071.50.
C. Trial Court Orders
On January 4, 2017, a hearing on Chyah's RFO was held before the Honorable Verna A. Adams, the same judge who adjudicated the dissolution petition in 2011. The record on appeal does not include a transcript of the January 4, 2017 hearing, but we have gleaned some pertinent information from the register of actions for this case. The hearing on Chyah's RFO was originally set for August 30, 2016, but was continued several times. On November 8, 2016, the court granted Chyah's ex parte request for another continuance, and ordered that Chyah's RFO for bonus spousal support and Jeffrey's RFO to terminate spousal support were both continued to January 4, 2017, for a one-day hearing.
At the January 4, 2017 hearing, the parties notified the court they had reached a partial agreement. The court instructed counsel to state the terms of the agreement for the record, questioned the parties to confirm they understood the terms of the agreement, and instructed counsel to formalize the agreement into a written stipulation. Although the appellate record does not contain a copy of that stipulation, the register of actions captured its key terms, which were that (1) spousal support could not be increased; (2) spousal support could be decreased only if Jeffrey was found to be disabled; and (3) spousal support would absolutely terminate on February 28, 2019.
At the January 4, 2017 hearing, the court also ordered that the parties were to submit declarations of counsel regarding their attorney fees and once the declarations were received, the bonus spousal support matter would be taken under submission. The case was submitted on February 1, 2017, and on March 13, 2017, the court issued its order on submitted matters (the March 2017 order).
The first matter addressed in the March 2017 order was the definition of the term "gross income" in paragraph 2.B of the MSA. The court also found that Jeffrey's understanding of this term, as excluding necessary business expenses, was consistent with section 4058, subdivision (a) (section 4058(a)), the only provision of the Family Code that defines "gross income." Section 4058(a), a guideline for calculating child support, states that annual gross income includes "(2) Income from the proprietorship of a business, such as gross receipts from the business reduced by expenditures required for the operation of the business."
The full text of section 4058(a) states: "The annual gross income of each parent means income from whatever source derived, except as specified in subdivision (c) and includes, but is not limited to, the following: [¶] (1) Income such as commissions, salaries, royalties, wages, bonuses, rents, dividends, pensions, interest, trust income, annuities, workers' compensation benefits, unemployment insurance benefits, disability insurance benefits, social security benefits, and spousal support actually received from a person not a party to the proceeding to establish a child support order under this article. [¶] (2) Income from the proprietorship of a business, such as gross receipts from the business reduced by expenditures required for the operation of the business. [¶] (3) In the discretion of the court, employee benefits or self-employment benefits, taking into consideration the benefit to the employee, any corresponding reduction in living expenses, and other relevant facts."
The court also observed that, prior to entry of judgment, Chyah had filed a settlement conference statement proposing that bonus spousal support be calculated as a percentage of Jeffrey's "partnership or W-2 earnings," which was an implicit acknowledgement that he was entitled to a credit for legitimate deductions/expenses. This proposal was "consistent with [section 4058(a)(2)] and with the normal approach to the issue of what income is available for bonus support." By contrast, the court found that adopting Chyah's current definition of gross income, as meaning all income from Jeffrey's K-1 statement disregarding any unreimbursed expenses, would be unfair the Jeffrey, and would result in an unreasonable windfall to Chyah.
The second issue addressed in the March 2017 order was whether Jeffrey could deduct health insurance premiums when calculating his bonus support payment. The court concluded that he could not make that deduction "for the simple reason that his health insurance is paid pre-tax, or above the line, as is demonstrated on his Schedule E for each of the years in questions."
Third, the court calculated Jeffrey's bonus support obligation for each relevant year, using the amount reported on line 22 of Jeffrey's Form 1040 tax form as his gross income. That analysis showed that Jeffrey had miscalculated his payment for only one of the years Chyah had questioned; he owed her an arrearage for 2012 in the amount of $1,594.50. Also, regarding the 2014 obligation, the court found that Chyah was entitled to $5,785, Jeffrey had sent Chyah a payment for that amount, but Chyah had returned Jeffrey's check. Accordingly, the court ordered Jeffrey to pay $7,379.50 to Chyah by May 1, 2017.
Finally, the court addressed Chyah's request for attorney fees and costs pursuant to sections 271 and 2030, in the total sum of $13,070.06. The court found that, except for the minor arrearage in 2012, Jeffrey had paid or attempted to pay every spousal support bonus Chyah was entitled to receive. Furthermore, litigation over this issue was "caused" by Chyah's unreasonable position, although the parties' negotiations were "hampered" by Jeffrey's "slowness in furnishing . . . his tax returns for the years in question." Under these circumstances, the court concluded that Chyah was not entitled to sanctions, but she was entitled to need-based fees because her income was modest. Therefore, the court ordered Jeffrey to pay $1,500 to Chyah's counsel by May 1, 2017.
III. DISCUSSION
A. Chyah's Definition of Gross Income
Chyah contends the trial court committed reversible error by rejecting her definition of the term "gross income." We disagree.
" ' "Marital settlement agreements incorporated into a dissolution judgment are construed under the statutory rules governing the interpretations of contracts generally." ' [Citation.]" (In re Marriage of Hibbard (2013) 212 Cal.App.4th 1007, 1012.) "As has often been restated: ' "The fundamental goal of contractual interpretation is to give effect to the mutual intention of the parties. [Citation.] If contractual language is clear and explicit, it governs. [Citation.] On the other hand, '[i]f the terms of a promise are in any respect ambiguous or uncertain, it must be interpreted in the sense in which the promisor believed, at the time of making it, that the promisee understood it.' [Citations.]" [Citation.] "The mutual intention to which the courts give effect is determined by objective manifestations of the parties' intent, including the words used in the agreement, as well as extrinsic evidence of such objective matters as the surrounding circumstances under which the parties negotiated or entered into the contract; the object, nature and subject matter of the contract; and the subsequent conduct of the parties. [Citations.]" [Citations.]' [Citations.]" (Id. at p. 1013.)
In the present case, the formula set forth in paragraph 2.B of the MSA for calculating bonus support payments contains the term gross income, which is ambiguous because it is not a defined term and it is reasonably susceptible of more than one meaning. In its broadest sense, gross income means all income without exception. However, as the trial court found, the Family Code utilizes a different definition for purposes of calculating child support, which provides that gross income from a business means gross receipts reduced by business expenses. (§ 4058, subd. (a)(2).) Furthermore, as the trial court found, the circumstances at the time the MSA was executed indicated that the parties intended this latter meaning.
Chyah disputes this conclusion, but her arguments are not persuasive. First, she posits that the term "gross income" unambiguously means all income without exception, citing a provision of the federal Internal Revenue Code, 26 U.S.C.A. § 61(a) (section 61(a)), which states: "General definition. Except as otherwise provided in this subtitle, gross income means all income from whatever source derived . . . ." Chyah also cites Black's Law Dictionary (10th ed. 2014), page 881, which paraphrases section 61(a). This authority establishes a general definition that is expressly made subject to exceptions and qualifications. Thus, it does not alter our conclusion that the undefined term gross income in the parties' MSA is ambiguous because it can be interpreted reasonably to mean more than one thing.
Second, Chyah contends that, to the extent the term gross income is ambiguous, her definition prevails under the reasoning of In re Marriage of Minkin (2017) 11 Cal.App.5th 939 (Minkin). In that case, the trial court resolved a dispute about the meaning of the term "annual bonus" in a MSA by defining the term to mean a discretionary payment based upon performance. (Id. at p. 942.) The ex-wife appealed, but the court's ruling was affirmed, based on the following reasoning: First, the term "annual bonus" was ambiguous because it was not defined in the MSA, and, "on its face," the term could reasonably be interpreted as "a discretionary payment based on performance or more broadly as any payment above base salary." (Id. at pp. 948-949.) Second, the circumstances under which the parties entered the stipulated judgment supported the trial court's conclusion that both parties understood that the ex-husband's bonus "was a discretionary payment by his employer based on his or the hospital's performance." (Id. at p. 949.)
Midway through a discussion of the Minkin case, Chyah's "Corrected" Appellant's Opening Brief refers to the case at issue as "Hibbard." We assume this is a scrivener's error.
Chyah contends that the trial court violated Minkin because her sworn declaration proves the parties intended that gross income would mean all income without any deductions. We disagree. The assertion in Chyah's declaration was conclusory and the trial court was not required to accept it as true. Other evidence before the court showed that both before and after the MSA was executed Jeffrey consistently took the position that his gross income for purposes of calculating support obligations should not include necessary business expenses. Furthermore, as the trial court found, Chyah took a similar view in her settlement conference statement.
Finally, Chyah argues that even if gross income means gross receipts from Jeffrey's business reduced by necessary business expenses, the trial court committed reversible error because it failed to actually apply section 4058(a) in order to calculate the bonus support payments due to Chyah. This argument is not logical. Section 4058(a) is relevant because it codifies a definition of gross income applicable in the comparable situation of calculating child support, and thus undermines Chyah's claim that the term unambiguously means something else. However, Chyah's right to a bonus support payment does not derive from that statute, but rather from the MSA incorporated into the judgment. The trial court never suggested otherwise, nor should it have.
B. Sanctions
Chyah contends the trial court committed reversible error by failing to sanction Jeffrey pursuant to section 271 for his refusal to mediate this dispute with Chyah. Again, we disagree.
"[S]ection 271 authorizes the trial court to award attorney's 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 purpose of the statute is " ' "to promote settlement and to encourage cooperation which will reduce the cost of litigation." [Citation.]' " [Citation.]" (Sagonowsky v. Kekoa (2016) 6 Cal.App.5th 1142, 1152.) " '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." [Citation.]' [Citation.]" (Ibid.)
In the present case, Chyah contends that the trial court abused its discretion because (1) the MSA contains a "mandatory" mediation provision; (2) Jeffrey admitted that he violated the "mandatory" mediation provision; and (3) the trial court gave no reason for refusing to sanction conduct that so clearly violates the policy of promoting settlement and reducing the cost of litigation. We disagree with every step of this argument.
First, the scope of the provision of the MSA calling for mediation of disputes is unclear. The provision itself is qualified by language acknowledging the parties may have made other agreements. Furthermore, another provision of the MSA expressly provides that the parties may turn to the court to enforce their agreement.
Second, Jeffrey did not admit that he violated the provision of the MSA about mediating disputes. Rather, he admitted that he refused to pay the mediator's retainer fee. The MSA did not address that discrete issue. Furthermore, if Chyah had a contractual right to "demand" mediation under these circumstances, she waived it by filing her RFO less than a month after serving Jeffrey's attorney with her demand letter.
Finally, the trial court found that Jeffrey substantially complied with his obligation to pay bonus support, and that Chyah caused litigation over this issue because of her unreasonable position. Thus, to the extent the court was required to explain its reasoning, these findings suffice. Under these circumstances, Chyah has failed to demonstrate the trial court abused its discretion by denying her request for sanctions.
IV. DISPOSITION
The post-judgment order is affirmed. Jeffrey may recover costs on appeal.
/s/_________
SMITH, J. We concur: /s/_________
STREETER, Acting P. J. /s/_________
REARDON, J.
Judge of the Superior Court of California, County of Alameda, assigned by the Chief Justice pursuant to article VI, section 6 of the California Constitution. --------