3 Cal. App. 5th 667
Cal. Ct. App.2016Background
- Husband (Shary Nassimi) sold IEI, a community-owned business, to Chamberlain in 2007 for ~$14M with $1M held in escrow for potential claims and additional "earn-out" payments possible. Wife (Esther) signed a spouse-consent and they treated proceeds as community property.
- The parties' 2009 stipulated dissolution judgment allocated the $1M escrow (¶7(g)) to be pursued and costs split equally, and assigned any earn-out claims and their costs to husband (¶7(h)), with an indemnity for counterclaims.
- Chamberlain sued husband in federal court (2009), alleging noncompliance with FCC rules, seeking rescission or damages; the federal proceedings produced summary adjudication favoring Chamberlain and considerable litigation that settled in 2011 for $1M paid by husband plus release of escrow.
- After divorce, husband moved in family court under Fam. Code §2556 to characterize the rescission-related litigation expenses and settlement as an omitted community obligation and to require wife to pay half; wife argued the judgment allocated costs to husband (¶7(h)) or otherwise released her.
- The family court initially found the rescission claims were an omitted community obligation but later denied husband reimbursement for settlement and most attorney fees, concluding husband failed to prove an allocation between defend/settle costs and fees for his earn-out counterclaim or other non-reimbursable work.
- The Court of Appeal reversed as to reimbursement of one-half the additional $1M settlement payment (remanding for entry of order requiring wife to reimburse half) but affirmed denial of most attorney-fee reimbursement because husband failed to carry his burden to allocate block-billed fees; it also reversed the family-court attorney-fee award to wife and remanded to reconsider prevailing party status.
Issues
| Issue | Husband's Argument | Wife's Argument | Held |
|---|---|---|---|
| Whether Chamberlain's rescission/damages litigation and settlement are an omitted community obligation under Fam. Code §2556 | Litigation and settlement arose from a contract made during marriage concerning community property (IEI); therefore liability is a community obligation omitted from the judgment and divisible under §2556 | Judgment provisions (¶7(h), ¶10, ¶13, mutual releases) allocate litigation responsibility to husband or otherwise absolve wife | Held: The rescission/damages liability was an omitted community obligation subject to division; wife must reimburse one-half the additional $1M settlement paid by husband |
| Whether paragraph 7(h) of the dissolution judgment required wife to share defense/settlement costs for Chamberlain's rescission claims | ¶7(h) addressed earn-out claims and indemnity for counterclaims provoked by husband’s suit; it did not cover a buyer-initiated rescission lawsuit | ¶7(h) broadly indemnifies wife from litigation between husband and Chamberlain except escrow disputes | Held: ¶7(h) does not cover Chamberlain-initiated rescission claims; ¶7(g) only governs escrow claim; therefore those rescission liabilities were not previously adjudicated |
| Whether husband proved entitlement to one-half of attorney fees/costs incurred defending Chamberlain’s rescission claims | Husband sought equal division of all litigation fees/costs and attempted to allocate via his review and a formula applied to block-billed entries | Wife showed many entries were adverse to her or unrelated; argued husband failed to carry burden to segregate block-billed fees | Held: Husband failed to present credible allocation of block-billed attorney time; trial court properly denied reimbursement of most attorney fees and costs |
| Whether the family court properly awarded attorney fees to wife as prevailing party under the judgment's fee clause | Husband argued fee award should reflect prevailing party under remand and that he might be prevailing party on remand | Wife argued she was prevailing party and entitled to fees under ¶38(b) of the judgment | Held: Fee award to wife reversed because remand requires reassessment of prevailing party after reversal on settlement reimbursement; remanded for reconsideration |
Key Cases Cited
- Lezine v. Security Pacific Fin. Servs., Inc., 14 Cal.4th 56 (community property liable for debts incurred during marriage)
- In re Marriage of Feldner, 40 Cal.App.4th 617 (contract made during marriage gives rise to community liability even if suit filed after separation)
- In re Marriage of Hirsch, 211 Cal.App.3d 104 (spouse may recover one-half of litigation/settlement costs where community benefitted; intentional wrongdoing does not automatically make liability separate)
- In re Marriage of Dekker, 17 Cal.App.4th 842 (characterization of property/income as community)
- Hsu v. Abbara, 9 Cal.4th 863 (prevailing-party determination under contract fee clause compares relief awarded to parties' claims)
- Scott Co. v. Blount, Inc., 20 Cal.4th 1103 (trial court discretion in determining prevailing party when neither side completely wins)