In re Marriage of SHARY NASSIMI and ESTHER NASSIMI. SHARY NASSIMI, Appellant, v. ESTHER NASSIMI, Respondent.
Nos. B259704, B260574
Second Dist., Div. Four.
Sept. 26, 2016.
2 Cal. App. 5th 667
Honey Kessler Amado for Appellant.
Lurie, Zepeda, Schmalz, Hogan & Martin, Kurt L. Schmalz and Shawn M. Ogle for Respondent.
OPINION
MANELLA, J.—Appellant Shary Nassimi, formerly married to respondent Esther Nassimi, contends the trial court erred in concluding that he, alone, was financially responsible for defending and settling a claim brought by a third party seeking, among other things, rescission of an agreement to sell the business he owned and operated during the marriage. We conclude the liability arising from the claim for rescission and other relief initiated by the third party was a community obligation omitted from the marital dissolution
With respect to the costs and attorney fees appellant incurred prior to the settlement, appellant‘s litigation expenses included the cost of his unsuccessful pursuit of certain counterclaims. The expense of pursuing those claims was allocated to him by the judgment, and appellant failed to present sufficient evidence to enable the trial court to distinguish fees and costs potentially chargeable to respondent for defense of the third party‘s claims for affirmative relief from fees and costs incurred in pursuit of appellant‘s counterclaims. Accordingly, we affirm the court‘s order to the extent it denied appellant‘s request for reimbursement of attorney fees and costs.
The trial court, having found against appellant on the above issues and on other issues raised in the underlying family law proceeding that are not part of this appeal, awarded respondent attorney fees as the “prevailing party” pursuant to the terms of the judgment. We agree the prevailing party provision of the judgment controlled. However, in view of our partial reversal of the trial court‘s order, we reverse the attorney fee award in favor of respondent and remand for reconsideration of the identity of the prevailing party, if any.
FACTUAL AND PROCEDURAL BACKGROUND
Appellant and respondent were married for 21 years. In August 2008, they separated. Their judgment of dissolution was entered in June 2009.
A. Sale of Appellant‘s Business
In July 2007, one year prior to the couple‘s separation, appellant sold International Electronics, Inc. (IEI), the business he owned and operated during the marriage, to The Chamberlain Group, Inc. (Chamberlain).2 Under their agreement (hereafter, the Purchase Agreement), Chamberlain agreed to pay $14 million up front, a $12,000-per-month consulting fee for two years, and a percentage of net sales revenue attributable to IEI products for five
Although appellant owned all the shares of IEI in his own name and signed the Purchase Agreement as the sole “Seller,” he has never disputed that IEI was community property. In July 2007, respondent signed a “Consent of Spouse” document, consenting to the sale, approving the provisions of the Purchase Agreement, and acknowledging that IEI and its assets, “including any community property interest that [she] may have in them,” were subject to the Purchase Agreement. A substantial portion of the cash proceeds from the sale were spent on the couple‘s residence on Sea View Drive in Malibu, which they owned free of mortgage at the time of separation.6
B. Judgment of Dissolution
In June 2009, the parties entered into a stipulated judgment of dissolution, which included a mediated financial settlement. The judgment incorporated the parties’ agreement concerning the division of property, referred to as the marital settlement agreement.7 The couple‘s two residences, including the home on Sea View, were deemed community property, as was the $12,000 per month consulting fee due appellant under the Purchase Agreement. Each spouse was awarded 50 percent of these assets.
The 2009 judgment addressed the funds in the escrow account. Paragraph 7(g) of the judgment provided: “All right, title, and interest in the following claims is awarded to the parties equally: Escrow claim against IEI in the amount of $1 million. The parties shall share in any recovery equally, and shall pay the cost of pursuing such claim (including attorneys’ fees) equally.”
Paragraph 10 dealt with “[c]ommunity [d]ebts.” Paragraph 10(f) stated: “Except as otherwise provided in this Judgment, any community debt or joint debt that has not been previously paid or provided for shall be paid by the party who incurred such debt who shall indemnify and hold the other party harmless against any liability on account thereof.”
Paragraph 13 was entitled “Separate Liabilities.” Subparagraph (a) provided that appellant “shall pay and discharge as and when due all debts incurred by him after the date of separation and shall indemnify and hold respondent free and harmless against any liability on account thereof.” Subparagraph (b) imposed a similar liability on respondent. Subparagraph (c) provided: “[T]he parties acknowledge and agree that neither party has an obligation to pay any expense incurred by the other except as provided in this Judgment. Unless the parties agree to allocate payment responsibility between themselves for an expense incurred by one of them, the expense shall be paid by the party who incurred it, who shall indemnify and hold the other party harmless against liability on account thereof.”
Paragraph 34 contained the parties’ mutual releases. In paragraphs 34(a) and (b), appellant and respondent released each other from “any and all rights, claims, demands, debts, obligations, liabilities, costs, expenses, causes of action, and judgments, which exist or which [appellant] may claim to exist in favor of [appellant] and against respondent with regard to or arising out of any transactions or event[s] that occurred prior to the date of this Judgment.” Paragraph 34(c) stated: “[T]he parties understand and agree that the released claims are intended to and do include all claims, known or unknown, suspected or unsuspected, foreseen or unforeseen, which either [appellant] or respondent ha[s] or may have against the other arising out of or relating to
C. Chamberlain Litigation
In April 2008, nine months after the sale and several months before the parties separated, Chamberlain sent a “Claim Notice of Buyer to Seller and Escrow Agent,” asserting that there were eight IEI products not in compliance with Federal Communications Commission (FCC) regulations, as they were “not being manufactured in accordance with the approved specifications,” and that necessary certification could not be located for three other products.10 The letter stated: “Seller‘s failure to disclose that numerous products failed to meet FCC regulations prior to and as of the closing date of the transaction constitutes a breach of [various provisions in the Purchase Agreement]. . . . [Jim Crider [IEI‘s chief engineer] has admitted . . . that he had actual knowledge of these issues and has admitted . . . that Seller had actual knowledge of these issues. Indeed, Mr. Crider will testify that Seller instructed him to make the change to the Transmitter [one of the products identified as noncompliant] which resulted in noncompliance with FCC regulations.” The next month, Chamberlain sent a follow-up letter, in which it estimated the cost of addressing the product noncompliance identified in the April letter at approximately $285,000, not including any FCC fines or penalties that might be imposed.11
Appellant filed a counterclaim seeking release of the escrow sums. In addition, the counterclaim alleged that Chamberlain had breached the Purchase Agreement by failing to provide earn-out payments. Appellant contended, among other things, that Chamberlain violated its duty of good faith and fair dealing by failing to focus any of its resources and sales efforts on IEI products.
In 2010, the district court granted summary adjudication on certain issues involved in the competing claims. The court granted Chamberlain summary adjudication in part on its claim for breach of contract, finding that many IEI devices exceeded the power limits set by the FCC in violation of the express warranty of the Purchase Agreement, that Chamberlain had established as a matter of undisputed fact that IEI‘s chief engineer, James Crider, had modified certain IEI devices for testing in order to create the appearance of compliance with FCC regulations, and that Crider‘s knowledge bound appellant under the terms of the Purchase Agreement.13 The court did not resolve whether the breach was sufficiently material to justify rescission or determine any damage issues, but indicated that based on the parties’ experts’ testimony, damages could range from hundreds of thousands of dollars to $16 million.
The court granted summary judgment to Chamberlain on appellant‘s counterclaim seeking the escrow monies, finding that Chamberlain‘s viable breach of contract claim precluded their immediate release. The court denied
In January 2011, a few months after the order of summary adjudication issued, Chamberlain and appellant settled. Appellant agreed to pay Chamberlain $1 million from his own funds, and to release the $1 million in the escrow account to Chamberlain.14
D. Proceedings Below
1. February 2010 Order Finding Chamberlain‘s Rescission-related Claims to Be an Omitted Obligation
In September 2009, prior to the Washington court‘s grant of summary adjudication and the ensuing settlement, appellant moved in the court below for an order requiring respondent to share equally in the ongoing costs of the Chamberlain litigation. Appellant contended that because the Purchase Agreement was entered into during the marriage and involved community property, the expenses of the litigation were owed by the community. He further contended that the claims asserted by Chamberlain were not covered by the provisions of the 2009 judgment, urging the court to treat it as an “unadjudicated debt of the marriage” subject to
Respondent filed opposition, disputing that any part of the Chamberlain litigation or its associated costs were liabilities omitted from the 2009
In February 2010, following a hearing, the court entered an order granting in part and denying in part appellant‘s petition. The order stated: “The Court finds that the liability of the parties with respect to the action for rescission and other related relief filed by [Chamberlain] against [appellant] in the . . . [Chamberlain litigation] constitutes an undisposed of obligation of the Community Estate of the parties in this action.” (Italics added.)18 The finding was made “without prejudice to all claims and defense[s] of the parties under the Judgment of Dissolution of Marriage,” and the court reserved jurisdiction “to the fullest extent permissible under the law to make such other further findings and orders concerning the rights and liabilities of the parties under the Judgment.” The court stated that it was “satisfied . . . that the parties never contemplated that Chamberlain would sue for rescission,” rendering the Chamberlain litigation ” ‘an undisposed of [liability].‘” However, the court explained that it did not intend its order ” ‘to be fully dispositive of all the rights of [respondent] to claim certain defenses that might be available to
2. 2014 Evidentiary Hearing
The evidentiary hearing took place in the first half of 2014. Three witnesses testified: appellant, respondent and Randall Beighle, one of the attorneys who had represented appellant in the Chamberlain litigation. Appellant, who was not an engineer, testified that he had not instructed IEI‘s engineers to design products to violate FCC requirements. He understood that some products were modified prior to testing for the convenience of the laboratory: for example, products that were designed to transmit radio frequencies intermittently were modified to transmit the frequencies continuously so they could be more easily measured. In addition, Chamberlain had its own testing facilities, and it was appellant‘s understanding that Chamberlain had tested IEI‘s products prior to the sale. In any event, he believed the problems identified by Chamberlain could easily have been mitigated had Chamberlain desired to manufacture and sell IEI products.
Concerning the circumstances surrounding the execution of the 2009 judgment, appellant testified that at the time, he was aware of Chamberlain‘s claim seeking reimbursement of a portion of the escrow funds. In addition, he and respondent had discussions with a Washington attorney about the possibility of pursuing a claim against Chamberlain under the earn-out provisions of the Purchase Agreement. He denied anticipating that Chamberlain would bring a suit for rescission of the entire agreement.20
Respondent testified that she knew little about the sale to Chamberlain. She was not aware when she signed the 2009 judgment that Chamberlain had claimed that IEI‘s products were not FCC compliant. At the time, her main concern was the funds in the escrow account.
Concerning the expenses of the Chamberlain litigation, attorney Beighle testified that appellant paid his firm over $1 million, including fees, costs and
Although the 2009 judgment assigned to appellant the costs of litigating claims related to the earn-out provisions of the Purchase Agreement and the court‘s February 2010 order stated that the omitted obligations were those related to Chamberlain‘s action for rescission and other affirmative relief, Beighle had made no attempt to allocate attorney fees between the defense of Chamberlain‘s action and the pursuit of appellant‘s earn-out counterclaim. He took the position that appellant‘s counterclaim had been filed defensively and that, in any event, all the claims and counterclaims were related, eliminating the need to differentiate. He was not asked by appellant‘s counsel to determine the percentage of attorney time spent on the earn-out counterclaim. When asked on cross-examination if any billing entries pertained to “whether or not Chamberlain had a right to obtain the escrow money,” he replied “probably 50 percent or 75 percent” or “more” based on his belief that the escrow dispute and Chamberlain‘s general damage claims were one and the same. He did not explain how he arrived at that percentage or indicate that he had undertaken any review of the bills.
Appellant, too, initially testified that all the attorney fees and costs billed by Beighle‘s firm should be divided equally between himself and respondent as, in his view, the claims and counterclaims were related and the pursuit of the earn-out counterclaim may have induced Chamberlain into a more favorable settlement. As the hearing progressed, he made an attempt to allocate the fees for work on different issues in the litigation, a task rendered difficult by the fact that attorneys in Beighle‘s firm tended to include work on both the claims and counterclaims in the same entry.21 Appellant reviewed the bills and prepared an exhibit purporting to summarize the portion
After the court questioned his allocation exhibit, appellant tried another approach. He went through each of the billing statements he had received from Beighle‘s firm and marked entries for blocks of time that were, in his view, completely unrelated to his earn-out counterclaim. Many of these entries, however, reflected attorney time spent in ways that were antithetical to respondent‘s interests, such as work on the request to join respondent as a necessary party, or otherwise not specifically related to defending Chamberlain‘s claims, such as work on a tax issue. Appellant did not summarize these entries or present the court with a total of the fees they represented.23 Moreover, in the midst of this testimony, appellant stated that he had changed his mind about a number of the billing entries he had marked, further confusing the record.
Respondent presented evidence to undermine appellant‘s attempted allocation. She prepared a spreadsheet summarizing time billed by the attorneys at Beighle‘s firm for work actively opposed to her interests, work on matters personal to appellant, and time spent on appellant‘s counterclaims, which she identified by the presence of the word “counterclaim” in the billing entry. She concluded $297,410 of the amount billed fell into one of these categories. She did not attempt to allocate entries that did not include the term “counterclaim” but might have been related to it, such as work on the “summary judgment” or “discovery.”
After hearing the evidence and reviewing the parties’ posthearing memoranda, the court issued a written order denying appellant‘s request that respondent share in the settlement costs, attorney fees or other expenses of the Chamberlain litigation.24 The basis for the court‘s denial was explained in a detailed written order.
The order reflected a change in the court‘s previously expressed view that the expenses of the action for rescission filed by Chamberlain were an undisposed of community obligation. Noting that paragraph 7(h) stated appellant was to indemnify and hold respondent harmless against liability on account of any “counter-claim . . . by Chamberlain,” the court concluded that “whether Chamberlain filed a ‘complaint’ against [appellant] alone and not a ‘cross-complaint’ or ‘counter-claim’ against ‘the parties’ ” was “immaterial,” and that “[t]he timing or the technical name of pleadings that resulted in the Chamberlain Litigation should not control.” The order explained, however, that this analysis represented a possible “alternative basis for the court‘s ruling,” and that “the court does not, and need not, determine the cause based on this alternative consideration.”
The order went on to explain that respondent was clearly not obliged to share in the cost of matters “not related to the defense of the Chamberlain lawsuit,” such as attorney work performed in pursuit of appellant‘s earn-out counterclaim. Nor was she required to share in the expenses of “legal work . . . that was adverse to [her].” Thus, appellant was required to present credible evidence allocating the fees and costs. The court found that appellant “failed to carry his burden of proof to show the amounts he incurred as a result of the Chamberlain litigation are amounts for which [respondent] should be liable.” Referencing appellant‘s attempt to untangle the entries in the attorneys’ bills, the court stated: “Even on direct examination, [appellant] could not properly establish his arbitrary percentages to support his calculations for the billing statements of his attorney. Simply because [he] reconstructed billing statements as a means of supporting his claims, there was no foundation for the application of these calculations to support his requested recovery.” The court further found: “[Appellant‘s] case in support of the
With respect to the cost of settlement, the court ruled that respondent would not be required to reimburse appellant for a share of the additional $1 million, plus interest, he paid Chamberlain to settle the litigation. The court concluded that the interest was appellant‘s responsibility, and that the settlement was not a “community settlement,” because respondent and the community were not included in the settlement agreement or the release.
4. November 2014 Order Awarding Respondent Attorney Fees as the “Prevailing Party” in the Underlying Family Law Proceeding
After the court denied appellant‘s request for reimbursement, both sides sought an award for the attorney fees and costs of the underlying family law proceeding. Appellant based his claim to entitlement on a traditional family law need-based theory (
The court then examined the parties’ entitlement to attorney fees and costs under the 2009 judgment‘s fee provisions. The court found that each party prevailed on some issues: respondent prevailed on the issues related to the expenses of the Chamberlain litigation and appellant‘s claim for compensation for maintaining the Sea View property, and appellant prevailed on respondent‘s claim of breach of fiduciary duty. Offsetting the fees attributable to the countervailing claims, the court awarded respondent $391,915.86.29 Appellant noticed appeals of the court‘s September 2014 and November 2014 orders.30 The appeals were consolidated.
DISCUSSION
A. Status of Chamberlain Litigation Debt
1. Status as Community Debt
Preliminarily, we explain why the expenses of the Chamberlain litigation—the attorney fees and costs, as well as the settlement incurred—would be a community debt in the absence of any alternative arrangement between the parties.31 Under California law, “all property . . . acquired by a
As the obligations arising from the sale of IEI to Chamberlain were incurred during the marriage, the community estate was liable for them. (Lezine v. Security Pacific Fin. Services, Inc. (1996) 14 Cal.4th 56, 64 [58 Cal.Rptr.2d 76, 925 P.2d 1002] (Lezine);
As explained in In re Marriage of Feldner (1995) 40 Cal.App.4th 617, 622-626 [47 Cal.Rptr.2d 312] (Feldner), the conclusion that the community is responsible for breaches of contract committed by either spouse follows from a reading of two related provisions in the
Here, the contractual obligation was incurred during the marriage, but the suit seeking to enforce the obligation did not commence until after the couple dissolved the marriage. As the reasoning of the Feldner court makes clear, this had no bearing on the community status of the liability. In Feldner, the husband, a contractor, entered into a contract to build—and essentially completed—a structure during the marriage, but failed to perform necessary repair work after the couple had separated. The husband was sued for breach of contract, and the wife contended the liability had been ” ‘incurred’ ” postseparation, when the husband ceased his repair efforts. (Feldner, supra, 40 Cal.App.4th at pp. 621-622.) The family court found the “entire liability represented by the suit was community in character,” subjecting the wife to “half the potential liability from the suit,” and the appellate court affirmed: “The character of the debt is clearly community because the contract giving rise to the debt was . . . ‘made’ during the marriage. All the consideration given (the promise to build and, if necessary, do any remedial work to make the building conform to the agreed plans) and received (the right to a lump sum payment) was exchanged before separation.” (Feldner, supra, at p. 619, italics omitted.) Put another way, “[t]he consideration [for the contract] . . . [was] necessarily exchanged . . . [a]t the time of the exchange of promises . . . .” (Id. at pp. 623-624.) Because this occurred during the marriage, “there can be no doubt that the trial court was correct in determining that the character of the potential liability from the . . . lawsuit . . . was community.” (Id. at p. 625.)
Although Feldner did not specifically address attorney fees or other litigation costs, the obligation of both spouses to pay their share was implicit in the court‘s affirmance of the trial court‘s ruling that the “entire liability represented by the suit” was a community obligation. (Feldner, supra, 40 Cal.App.4th at p. 619.) An explicit holding that separated spouses are obliged to share in the costs of defending lawsuits threatening community assets can be found in In re Marriage of Hirsch (1989) 211 Cal.App.3d 104 [259 Cal.Rptr. 39]. There, the husband had been a member of the board of directors of a bank during the marriage, receiving remuneration which was undisputedly community property. (Id. at p. 106.) After the parties separated, he was named as a defendant in multiple lawsuits against the board, asserting both tort and contract claims. (Ibid.) He settled the lawsuits and sought reimbursement from his estranged wife for one-half the amount expended in settling, including attorney fees and costs. (Ibid.) The trial court denied reimbursement, finding that as the litigation was the result of the husband‘s
The fact that the expenses of the Chamberlain litigation ordinarily would be a community obligation subject to equal division under the
2. Status as an Omitted Debt Under the 2009 Judgment
a. Neither Paragraph 7(g) nor 7(h) of the Judgment Addressed a Lawsuit by Chamberlain for Rescission or for Claims in Excess of $1 Million
Appellant contends that the possibility that Chamberlain would initiate litigation seeking rescission of the Purchase Agreement or damages in excess of the $1 million in the escrow account was not contemplated by the parties in June 2009. Thus, no provision addressing this possibility was included in the 2009 judgment, and the amount incurred to settle Chamberlain‘s claims, as well as a portion of the expenses incurred litigating them, constituted an omitted obligation subject to division by the court under
“Marital settlement agreements incorporated into a dissolution judgment are construed under the statutory rules governing the interpretations of
“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.” (
We also follow the rule that the language of a provision should be construed in context, in view of the intended function of the provision and of the contract as a whole. (Bank of the West v. Superior Court (1992) 2 Cal.4th 1254, 1265 [10 Cal.Rptr.2d 538, 833 P.2d 545].) This may require inquiry into the circumstances under which the contract was made. (
The two provisions of the 2009 judgment that refer to the prospect of litigation with Chamberlain are paragraphs 7(g) and 7(h). Neither their plain language nor the circumstances that prevailed when they were drafted indicate that they were intended to cover the rescission-related claims Chamberlain pursued in the Washington district court. Paragraph 7(g) provided that the right, title and interest in any claim on the escrow funds was to be divided equally between the parties, and that the parties “shall pay the cost of pursuing such claim (including attorneys’ fees) equally.” The $1 million in escrow funds were part of the sale price for IEI, set aside to provide compensation to Chamberlain if it discovered a breach. In the two months preceding the entry of the 2009 judgment, Chamberlain submitted a formal written claim against the funds, contending a handful of IEI products did not comply with regulations and estimating its damages and the cost of mitigation to be approximately $300,000. Thus, the parties included paragraph 7(g), covering contemplated litigation with Chamberlain over alleged breaches of contract, but limiting the scope of damages to the $1 million in the escrow account.
During the same general time frame, appellant became increasingly unhappy over Chamberlain‘s failure to produce and sell IEI products and generate earn-out payments. He and respondent held discussions with an attorney about pursuing a claim against Chamberlain under the earn-out provisions, but respondent wanted nothing to do with the risks associated with a claim of this type and was willing to forgo any potential benefits. Paragraph 7(h) addressed the possibility that appellant would pursue a claim under the earn-out provisions of the Purchase Agreement. The first sentence specified that appellant would own “[a]ll right, title and interest” in any such claim. The second relieved respondent of any “obligation to pay all or any part of the cost of pursuing any such claim (including attorneys’ fees).” The final sentence obligated appellant to “indemnify and hold respondent harmless against liability on account of any counter-claim or cross-complaint that may be filed by Chamberlain,” excluding a claim covered by 7(g). Thus, by its terms, paragraph 7(h) addressed the respective rights and obligations of the parties if appellant pursued a claim against Chamberlain under the earn-out provisions, and Chamberlain was provoked into a counterclaim or cross-claim by such suit. Paragraph 7(h) said nothing about a claim or complaint initiated by Chamberlain, and did not address the possibility that Chamberlain would sue to rescind the entire contract and recoup the purchase price.
b. No Other Provision of the 2009 Judgment Addressed Chamberlain‘s Rescission-related Claims
Respondent argues that the expenses of defending and settling Chamberlain‘s claims were covered by provisions of the 2009 judgment other than paragraphs 7(g) and 7(h). First, she raises paragraph 34(a), the paragraph dealing with claims between appellant and respondent in existence in June 2009, under which appellant agreed to release respondent from claims “which exist or which [appellant] may claim to exist in favor of [appellant] and against respondent with regard to or arising out of any transaction or event that occurred prior to the date of this Judgment.” She asserts that in paragraph 34(b), appellant released all his claims for costs or liabilities against respondent arising out of the Purchase Agreement. We reject this argument, as appellant had no claim against respondent under the Purchase Agreement. Chamberlain and appellant had potential claims against each other, which had not yet ripened into actual litigation when the 2009 judgment was executed. Appellant‘s claim against respondent for litigation expenses arose a month later, when Chamberlain filed the lawsuit, and appellant began paying the expenses of the litigation without contribution from respondent.
Next, respondent contends that appellant is solely responsible for the expenses of the Chamberlain litigation because under paragraph 10(f), he agreed that any community debt not provided for in the 2009 judgment would be paid by “the party who incurred such debt.” As we have seen, the community “incurred” the debt by virtue of the fact that the contractual obligations arose during the marriage. (Lezine, supra, 14 Cal.4th at pp. 63-64; Feldner, supra, 40 Cal.App.4th at p. 619.)
Finally, respondent contends that paragraph 13(c) allocates all responsibility for the Chamberlain litigation to appellant. Paragraph 13 covers “Separate Liabilities.” Paragraph 13(c) provides that “neither party has an obligation to pay any expense incurred by the other except as provided in this Judgment,” and that “[u]nless the parties agree to allocate payment responsibility between themselves for an expense incurred by one of them, the expense shall be paid by the party who incurred it, who shall indemnify and hold the other party harmless against liability on account thereof.” As discussed ante, the expenses of defending Chamberlain‘s claims were a community liability, not a separate one, and were incurred by the community, not by appellant separately. In sum, none of the alternate provisions raised by respondent to support her contention that appellant is solely responsible for the costs of defending Chamberlain‘s claims applies.
3. Res Judicata
Respondent contends that principles of res judicata preclude appellant from pursuing his claim for reimbursement of litigation expenses and settlement costs, contending the 2009 judgment was binding on issues that “could have been” raised prior to its entry. As explained in In re Marriage of Thorne & Raccina (2012) 203 Cal.App.4th 492 [136 Cal.Rptr.3d 887], “once a marital dissolution judgment has become final, the court loses jurisdiction to modify or alter it. [Citations.] Under the doctrine of res judicata, ‘[i]f a property settlement is incorporated in the divorce decree, the settlement is
Here, for the reasons discussed, we conclude the obligations deriving from the Chamberlain-initiated rescission claim were not addressed in the 2009 judgment. Accordingly, the doctrine of res judicata does not preclude appellant‘s claim for a share of the expense of defending and settling the litigation.
4. Unclean Hands
The fact that a spouse has intentionally engaged in misconduct that harms a third party without his or her spouse‘s knowledge does not relieve the community—or the innocent spouse‘s share of community assets—from the obligation to the third party where the community obtained the benefit of the conduct. (See, e.g., In re Marriage of Hirsch, supra, 211 Cal.App.3d at p. 111 [criminal or tortious conduct which results in benefit to the community creates “shared community debt“]; In re Marriage of Bell (1996) 49 Cal.App.4th 300, 310 [56 Cal.Rptr.2d 623] [at time of dissolution and division of community assets, equal share of the cost of reimbursing victim of wife‘s embezzlement fell on husband, where “there was uncontradicted testimony that the community received the benefit of the embezzlement“]; see also In re Marriage of Schultz (1980) 105 Cal.App.3d 846, 855-856 [164 Cal.Rptr. 653] [husband‘s negligent failure to appear in court to defend action brought by creditor, resulting in default judgment, did not “require[] an unequal division of the . . . debt“];
Respondent contends we should follow In re Marriage of Stitt (1983) 147 Cal.App.3d 579 [195 Cal.Rptr. 172]. Stitt is distinguishable. There, the wife, after being convicted of embezzlement, was sued for fraud and misappropriation of funds. She paid over $10,000 in attorney fees to defend herself and to reimburse the wronged party. (Id. at p. 584.) She argued these expenses should be regarded as community debt. (Id. at p. 586.) However, she
B. Cost of Settlement
Our conclusion that the liability arising out of Chamberlain‘s claims was a community obligation omitted from the 2009 judgment requires us to reverse the court‘s conclusion that respondent had no obligation to contribute her share of the $2 million settlement. The court‘s finding that respondent was relieved of the obligation because appellant settled with Chamberlain without including respondent or the community in the settlement or release misconstrues the effect of the settlement. Appellant‘s actions were the conduit through which Chamberlain could assert a claim on community funds, including those held by respondent. Having settled its claims against appellant and received payment of the amount due, Chamberlain had no basis to pursue respondent or the community. (See Reynolds and Reynolds v. Universal Forms, Labels, supra, 965 F.Supp. at pp. 1395-1397 [although judgment against spouse acting for benefit of the community binds community estate and his separate property, innocent spouse has no personal liability].)
C. Attorney Fees and Costs
1. Fees in the Chamberlain Litigation
Our conclusion does not, however, resolve respondent‘s obligation to pay a share of the attorney fees and costs arising from that litigation. Although the court concluded that paragraph 7(h) assigned all the fees and costs of the Chamberlain litigation—including the cost of defending Chamberlain‘s rescission-related claims—to appellant, it rejected appellant‘s fee request on an alternative ground. It found that appellant‘s reimbursable fees and costs could not include the expenses of pursuing his earn-out counterclaim under any interpretation of the 2009 judgment, and that appellant failed to meet his burden of establishing the amount of his reimbursable fees and costs. We agree.
Preliminarily, we observe that appellant has directed us to nothing in the record demonstrating that he urged the trial court to allocate between reimbursable and unreimbursable fees based on Beighle‘s estimation or respondent‘s spreadsheet. “As a general rule, theories not raised in the trial court cannot be asserted for the first time on appeal; appealing parties must adhere to the theory (or theories) on which their cases were tried . . . . [I]t would be unfair, both to the trial court and the opposing litigants, to permit a change of theory on appeal.” (P&D Consultants, Inc. v. City of Carlsbad (2010) 190 Cal.App.4th 1332, 1344 [119 Cal.Rptr.3d 253], quoting Eisenberg et al., Cal. Practice Guide: Civil Appeals and Writs (The Rutter Group 2009) ¶ 8.229, p. 8-155 (rev. # 1, 2009).)
More important, the court‘s conclusion is supported by the principles governing the scope of evidence necessary to support a fee award, especially where block billing is involved. “[T]he [party] . . . seeking fees and costs “bear[s] the burden of establishing entitlement to an award and documenting the appropriate hours expended and hourly rates.” [Citation.] ” (Christian Research Institute v. Alnor (2008) 165 Cal.App.4th 1315, 1320 [81 Cal.Rptr.3d 866].) ” ‘To that end, the court may require [a] defendant[] to produce records sufficient to provide ” ‘a proper basis for determining how much time was spent on particular claims.’ ” [Citation.]’ ” (Ibid.) “The evidence should allow the court to consider whether the case was overstaffed, how much time the attorneys spent on particular claims, and whether the hours were reasonably expended. [Citation.]” (Ibid.) ” ‘The court . . . may properly reduce compensation on account of any failure to maintain appropriate time records. [Citation.]’ ” (Ibid.)
Block billing presents a particular problem for a court seeking to allocate between reimbursable and unreimbursable fees, and trial courts are granted discretion “to penalize block billing when the practice prevents them from discerning which tasks are compensable and which are not.” (Heritage Pacific Financial, LLC v. Monroy, supra, 215 Cal.App.4th at p. 1010; accord, Welch v. Metropolitan Life Ins. Co. (9th Cir. 2007) 480 F.3d 942, 948 [“The fee applicant bears the burden of documenting the appropriate hours expended in the litigation and must submit evidence in support of those hours worked. [Citation.] It was reasonable for the district court to conclude that [the applicant] failed to carry her burden, because block billing makes it more difficult to determine how much time was spent on particular activities“].) “If counsel cannot . . . define his billing entries so as to meaningfully enlighten the court of those related to the [fee claim],” the trial court may “exercise its discretion in assigning a reasonable percentage to the entries,” or “simply cast them aside.” (Bell v. Vista Unified School Dist. (2000) 82 Cal.App.4th 672, 689 [98 Cal.Rptr.2d 263].)
It also is true that when a fee claim is inflated with “a multitude of time entries” devoted to matters other than reimbursable fees, the claimant‘s credibility is “undermin[ed],” and the court is “justified . . . in taking a jaundiced view of the fee request.” (Christian Research Institute v. Alnor, supra, 165 Cal.App.4th at p. 1325.) “An attorney‘s chief asset in submitting a fee request is his or her credibility, and where vague, block-billed time entries inflated with noncompensable hours destroy an attorney‘s credibility with the trial court, we have no power on appeal to restore it.” (Id. at pp. 1325-1326.)
In its February 2010 order, the court found that the liabilities of the parties “with respect to the action for rescission and other related relief” filed by Chamberlain against appellant in the Washington district court constituted an undisposed of obligation under the 2009 judgment; it specifically rejected appellant‘s contention that all the costs of the litigation fell into this category. Appellant thus had both notice and incentive to come to the evidentiary hearing prepared to address allocation. Instead, he claimed entitlement to one-half of all the attorney fees he paid to Beighle‘s firm, although Beighle himself acknowledged substantial time was spent pursuing the earn-out counterclaim. Moreover, even a cursory look at the bills established that the firm had spent significant time on matters personal to appellant or contrary to respondent‘s interests. Appellant undertook at the last minute to fill in the gap in the evidence by personally reviewing the bills and preparing an exhibit summarizing them, but the court found his methods questionable and gave no credence to his testimony or the exhibit he prepared.
On appeal, appellant does not dispute the court‘s conclusion that the evidence he presented was of little value in resolving the attorney fee allocation issue. The evidence he now claims the court should have relied on does not fill in the gaps. With respect to Beighle‘s estimate, “[t]he trial court is not bound by an attorney‘s evidence in support of his requested fee.” (Vella v. Hudgins (1984) 151 Cal.App.3d 515, 524 [198 Cal.Rptr. 725].)
We also reject appellant‘s alternative contention that the spreadsheet prepared by respondent was sufficient to support an award. Respondent, a lay person unfamiliar with the Washington litigation or the billing records, relied on appellant‘s documents to discredit his claim. Her review of the records attempted to identify work done on matters adverse to her interest, unrelated to the Chamberlain litigation or labeled as relating to the counterclaim. Such a review could not substitute for an adequate breakdown of the time spent on Chamberlain‘s rescission-related claims. In sum, neither Beighle‘s estimation nor respondent‘s spreadsheet made up for the shortfalls in appellant‘s evidentiary presentation, and the trial court did not err in rejecting the attorney fees claim for lack of evidence.
2. Fees in the Underlying Proceedings
The trial court determined that the costs of the instant litigation were governed by paragraph 38(b) of the 2009 judgment, which called for an award of attorney fees and costs to the prevailing party in any proceeding brought “to interpret or enforce any of the provisions of this Judgment.” We reject appellant‘s argument that the proceedings below did not represent an effort to “interpret or enforce” the judgment because “an omitted debt is outside the Judgment.” His motion under
DISPOSITION
The court‘s order of September 10, 2014, is reversed with respect to its denial of reimbursement for one-half the settlement funds appellant paid Chamberlain. In all other respects, the order is affirmed. The court‘s order of November 17, 2014, awarding attorney fees to respondent is reversed. The matter is remanded for entry of an order requiring respondent to reimburse appellant one-half the settlement paid to Chamberlain from appellant‘s individual funds, and for reconsideration of attorney fees in the family court proceeding. Each party is to bear his or her own costs.
Epstein, P. J., and Willhite, J., concurred.
On October 14, 2016, the opinion was modified to read as printed above. Respondent‘s petition for review by the Supreme Court was denied December 14, 2016, S238203.