Case Information
*1 Filed 4/21/20
CERTIFIED FOR PUBLICATION IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT DIVISION FIVE ROSE SAFARIAN, B291387 Plaintiff and Appellant, (Los Angeles County Super. Ct. No. BC387615) v.
HARRY GOVGASSIAN et al.,
Defendants and
Respondents. APPEAL from an order of the Superior Court of Los Angeles County, Edward B. Moreton, Jr., Judge. Reversed and remanded.
Law Offices of Armen M. Tashjian and Armen M.
Tashjian, for Plaintiff and Appellant.
Stone & Stone, Steven H. Stone; Benedon & Serlin, Gerald M. Serlin, Wendy S. Albers, for Defendants and Respondents.
_______________________
A married couple filed a fraud action against multiple defendants. While the fraud action was pending, husband filed for divorce. Husband and wife entered into a written marital property agreement that characterized any recovery in the fraud action as the separate property of each spouse. Judgment was entered against the defendants in the fraud action, but husband filed for bankruptcy prior to enforcement of the judgment. The fraud defendants, aware of the marital property agreement, entered into a settlement with the bankruptcy trustee. Next, they moved to stay collection proceedings brought by wife in the fraud action on the ground that the entire amount of the judgment was community property included in husband’s bankruptcy estate and settled by the bankruptcy trustee. Wife argued that under the marital property agreement, her interest in the fraud judgment was her separate property, which was not part of husband’s bankruptcy estate. Defendants argued the marital property agreement was ineffective because it did not meet the transmutation requirements of Family Code section 852, [1] which precludes extrinsic evidence to resolve ambiguities. The trial court interpreted the marital property agreement to have had no effect on the character of the judgment proceeds. The agreement specifically identified the fraud action, but it referred to the spouses’ separate claims in the action; in fact, all of the claims in the fraud action were brought jointly. The trial court found the *3 agreement was impermissibly vague, so it failed to transmute the community property judgment proceeds to separate property interests. The trial court granted the protective order.
On appeal, wife contends the fraud defendants do not have standing to challenge the property agreement based on the transmutation requirements of section 852. We conclude a transmutation that does not meet the requirements of section 852 is voidable, rather than void. Since the defendants are not parties to the marital property agreement, they cannot rely on section 852 to invalidate the agreement. We reverse and remand for further proceedings to determine the effect of the marital property agreement under ordinary rules of contract interpretation.
FACTUAL AND PROCEDURAL BACKGROUND Fraud Trial and Marital Property Agreement On March 20, 2008, plaintiff and appellant Rose Safarian (Wife) and her husband Armen Sanamyan (Husband) filed an action against defendants and appellants Harry Govgassian and Alisa Agadjanian, as well as against Elsagav S. Shaham, M.D., Hippocratic Management Services, Inc., and Silka Enterprises Inc., doing business as Salud Family Medical Clinic, for fraud and other claims arising out of an investment in a medical clinic (the fraud action).
Two months later in May 2008, Husband filed a petition for dissolution of marriage. Wife and Husband executed a “marital settlement agreement” at the end of July 2008. The express purpose of the agreement was to make a final and complete settlement of all rights and obligations between them, including all property rights. Provision 1, subdivision j, of the agreement stated, “Except as otherwise expressly provided in this Agreement, each Party, hereby releases the other from all inter-spousal obligations whether incurred before or after the effective date, and all claims to the property of the other. This release extends to all claims based on the rights that have accrued before the marriage, including, but not limited to, property and support claims. Additionally, it is agreed that each Party, while engaged in joint prosecution, will be entitled to maintain his or her separate claims for damages pertaining to the alleged fraud actions pertaining to two litigation matters, in reference to Ummba Grill Restaurant and Silka Enterprises, Inc., ( collectively referred to as ‘Govgassian Fraud Cases’). The proceeds recovered from these actions will be the separate property of each Party. The parties have considered such claims in this agreement.”
In addition, provision 10 of the agreement stated, “The parties acknowledge that they have previously divided all of their community assets and liabilities as well as their separate property, between them to their satisfaction. Each party hereby confirms such division and transfers to the other as his or her separate property all such property in *5 their personal possession or title, including but not limited to th e items stated in 1(j) above.”
The agreement stated it was valid and enforceable “ upon signing by both parties regardless whether a judgment for d issolution is entered or not.” The effective date of the agreement was the date of execution by both parties.
Husband signed the agreement on July 21, 2008, and Wife signed the agreement on July 22, 2008.
Three years later, on August 20, 2012, judgment was entered after a jury trial in the fraud action in favor of Wife and Husband. Hippocratic ’s default had been entered . The jury found the defendants conspired to defraud the plaintiffs, whose total damages were $460,000 as follows: $240,000 for loss of investment or loans, $20,000 for Wife ’s unpaid wages, $100,000 for Wife ’s noneconomic losses, and $100,000 for Husband ’s noneconomic losses. The jury also found the defendants liable for punitive damages as follows: $250,000 as against Govgassian, $125,000 as against Agadjanian, $100,000 as against Shaham, and $25,000 as against Silka. The judgment ordered recovery of $460,000 to Wife and Husband from the defendants jointly and severably, an additional $250,000 from Govgassian, an additional $125,000 from Agadjanian, an additional $100,000 from Shaham, and an additional $25,000 from Silka.
Govgassian and Agadjanian filed a notice of appeal, as did Shaham. But on December 18, 2012, the appeal filed by Govgassian and Agadjanian was dismissed based on their default.
Bankruptcy Filing
On December 13, 2013, Husband filed a petition for bankruptcy under Chapter 7 of the Bankruptcy Code. He expressly stated that it was not a joint case and he was unmarried. He listed the dissolution proceeding as a pending action to which he was a party as well as other civil litigation not relevant here. Husband did not list the fraud action in his original bankruptcy petition. The record on appeal does not contain an amended petition, but Govgassian and Agadjanian have represented in pleadings in this matter that Husband filed an amended bankruptcy petition on February 11, 2014, listing the judgment in the fraud action. The bankruptcy court granted a discharge to Husband on April 7, 2014.
Four months later, this appellate court affirmed the judgment against Shaham in the fraud action in an unpublished opinion. ( Safarian v. Shaham (Oct. 9, 2014, B244709).)
Govgassian and Agadjanian contacted bankruptcy trustee Howard Ehrenberg to discuss settlement of the judgment in the fraud action. In early 2016, Ehrenberg provided notice in the bankruptcy proceedings of a motion to approve a proposed settlement with the judgment debtors. In response, the attorney who represented Wife and Husband in the fraud action expressed concern that the proposed settlement might compromise W ife’s interest in the judgment. Ehrenberg did not believe he had settled Wife’s *7 claim and assured the attorney that the judgment debtors did not include Wife’s interest in the settlement. The following week, Ehrenberg changed his assessment and stated he could not confirm that the settlement did not extend to Wife’s interest, because the judgment was a community asset included in the bankruptcy estate.
Husband’s bankruptcy attorney provided Ehrenberg with a copy of the marital property agreement, and Ehrenberg withdrew his motion to approve the settlement. Ehrenberg concluded Wife had an interest in the fraud judgment that was separate from the bankruptcy estate, and he did not have any authority to compromise Wife’s interest. Separate mediations were held.
On August 19, 2016, Ehrenberg entered into an agreement with Govgassian and Agadjanian to accept payment in settlement of Husband’s rights and interest to collect on the judgment. The bankruptcy court approved the settlement of the judgment in November 2016, and Govgassian and Agadjanian completed payment of the judgment in May 2017. On July 26, 2017, the bankruptcy trustee executed a satisfaction of judgment that clearly stated it was in full satisfacti on of Husband’s interest only. Protective Order to Stay Collection Proceedings On March 6, 2018, Govgassian and Agadjanian filed a motion in the fraud action for a protective order staying all collection proceedings. They argued that even if a marital *8 settlement agreement existed, the causes of action and recovery in the fraud case were community property as a matter of law, because no judgment of dissolution or approval of the agreement dividing the property had been entered. Community property, including the non- debtor’s spouse’s sha re, became part of the bankruptcy estate by law. As a result, the satisfaction of judgment signed by the bankruptcy trustee satisfied the entire fraud judgment.
Govgassian and Agadjanian submitted Ehrenberg ’s declaration in support of their motion. Ehrenberg stated that the fraud judgment was an asset of the bankruptcy estate, but the bankruptcy court had not ruled on whether the judgment was community or separate property. On August 19, 2019, Ehrenberg entered into a settlement agreement with Govgassian and Agadjanian to accept payment in full and final settlement of the bankruptcy debtor’s rights and interest to collect upon the judgment. Because the payment extinguished the entire asset held by the bankruptcy estate, Ehrenberg executed a satisfaction of judgment which states that it is as to Husband ’s interest only. Ehrenberg did not want to prejudice any rights that Wife might have in the judgment. It was his understanding that if the judgment were a community asset, the entire judgment was satisfied by the payment.
Wife opposed the motion for a protective order. She argued that under her agreement with Husband, she held her interest in the fraud judgment as her separate property, *9 and therefore, her interest was never part of Husband ’s bankruptcy estate.
She submitted her attorney’s declaration , as well as a reporter’s transcript of an April 4, 2018 hearing in bankruptcy court. Ehrenberg testified at the hearing that the first time Wife’s interest was raised to him was when her attorney in the fraud action expressed concern on January 20, 2016, about the proposed settlement. The settlement agreement that Ehrenberg signed with Govgassian and Agadjanian was solely with respect to Husband ’s interest in the judgment.
Wife also submitted Ehrenberg’s declaration , her own declaration, the dissolution petition, and the property agreement. She declared that she had no involvement in the bankruptcy proceedings.
Govgassian and Agadjanian filed a reply. They argued the provisions of the property agreement were ambiguous and failed to transmute Wife ’s community property interest in the fraud judgment into a separate property interest, citing section 852 for the first time.
With the reply, Govgassian and Agadjanian submitted the declaration of family law specialist Evan Itzkowitz. Itzkowitz opined that the terms of the property agreement were not sufficient to transmute the causes of action and recovery in the fraud action from community property to the separate property of Wife and Husband. They also submitted a copy of the settlement agreement that they *10 entered into with Ehrenberg, and an email exchange between Ehrenberg and the attorney in the fraud action. Wife objected to the new evidence filed with the reply. A hearing was held on June 4, 2018. Itzkowitz argued at the hearing on behalf of Govgassian and Agadjanian that the court could not “ interpret ” the property agreement. Section 852 required an express declaration that the character of the property was being changed to effect a transmutation, and no extrinsic evidence was permitted. Itzkowitz insisted the agreement lacked the type of granting language required to change the character of the property, such as “I grant it to you” or “ I give it to you.” Wife ’s attorney responded that the language of the agreement was clear, it divided Wife and Husband ’s property, and the parties to the agreement had no confusion or disagreement over the terms. Itzkowitz replied that the agreement was vague, because it referred to separate claims for damages, when there were no separate claims for damages. Wife ’s attorney responded that the agreement was sufficiently specific to accomplish the division of property, because it referred to the specific litigation and the proceeds of any recovery. The trial court sustained Wife ’s objections to the new material submitted with the reply and took the matter under submission.
Later that day, the trial court granted the motion for a protective order. The court found there were no separate claims by either Wife or Husband in the fraud action. All of the claims in the action were joint, and there was no separate damages recovery. “Therefore, the language in the *11 Marital Settlement Agreement is impermissibly vague and unenforceable, thus cannot be considered to have transm uted any such property from ‘community’ to ‘separate’ property. Accordingly, since there was no separate property as part of the proceeds of this lawsuit – it was all community property – the entirety of the judgment against Harry Govgassian and Alisa Agajanian was satisfied through the bankruptcy court proceedings.” Wife filed a timely notice of appeal from the order.
DISCUSSION Standard of Review
Marital property settlement agreements are favored
under California law (
Adams v. Adams
(1947)
contract was made and its subject matter. (Civ. Code,
§§ 1639, 1647;
Hess v. Ford Motor Co.
(2002)
Statutory Scheme Governing Transmutations
To determine whether third parties have the power to
invalidate marital property agreements that fail to meet the
requirements of section 852, we must review the statutory
scheme governing transmutations. The property rights
provided to spouses by statute may be altered through a
marital property agreement. (§ 1500;
Litke O'Farrell, LLC v.
Tipton
(2012)
Under section 852, a transmutation “is not valid unless
made in writing by an express declaration that is made,
joined in, consented to, or accepted by the spouse whose
interest in the p roperty is adversely affected.” (§ 852, subd.
(a).)
[4]
The writing must contain an “express declaration” that
*14
“expressly states that the characteriz ation or ownership of
the property is being changed.” (
Estate of MacDonald
(1990)
Prior to the enactment of section 852, spouses could easily transmute property, including through oral statements or implications from conduct. ( MacDonald , to, or accepted by the spouse whose interest in the property is adversely affected. [¶] (b) A transmutation of real property is not effective as to third parties without notice thereof unless recorded. [¶] (c) This section does not apply to a gift between the spouses of clothing, wearing apparel, jewelry, or other tangible articles of a personal nature that is used solely or principally by the spouse to whom the gift is made and that is not substantial in value taking into account the circumstances of the marriage. [¶] (d) Nothing in this section affects the law governing characterization of property in which separate property and community property are commingled or otherwise combined. [¶] (e) This section does not apply to or affect a transmutation of property made before January 1, 1985, and the law that would otherwise be applicable to that transmutation shall continue to apply.”
supra , 51 Cal.3d at pp. 268 – 269.) [5] The California Law Revision Commission (the Commission) reported to the Legislature that “California law permits an oral transmutation or transfer of property between the spouses notwithstanding the statute of frauds. The rule recognizes the convenience and practical informality of interspousal transfers. However, the rule of easy transmutation has also generated extensive litigation in dissolution proceedings. It encourages a spouse, after the marriage has ended, to transform a passing comment into an ‘agreement’ or even to commit perjury by manufacturing an oral or implied transmutation. [¶] The convenience and practice of informality recognized by the rule permitting oral transmutations must be balanced against the danger of fraud and increased litigation caused by it. The public expects there to be formality and written documentation of real property transactions, just as it expects there to be *16 formality in dealings with personal property involving documentary evidence of title, such as automobiles, bank accounts, and shares of stock. Most people would find an oral transfer of such property, even between spouses, to be suspect and probably fraudulent, either as to creditors or between each other. [¶] California law should continue to recognize informal transmutations for certain personal property gifts between the spouses, but should require a writing for the transmutation of real property or other perso nal property.” (Recommendation Relating to Marital Property Presumptions and Transmutations (Nov. 1983) 17 Cal. Law Revision Com. Rep. (1984) pp. 213 – 214, fns.
omitted (Commission Report).)
The Legislature enacted the writing requirement of
section 852 to prevent transmutations based on easily
manipulated and unreliable evidence. (
MacDonald
,
supra
,
The Commission ’s comment to the statutory text
explained that “ [Section 852] imposes formalities on
interspousal transmutations for the purpose of increasing
certainty in the determination whether a transmutation has
in fact occurred. [Section 852] makes clear that the ordinary
rules and formalities applicable to real property transfers
apply also to transmutations of real property between the
spouses. See Civ. Code §§ 1091 and 1624 (statute of frauds),
1213 – 1217 (effect of recording). This overrules existing case
law. See,
e.g.
,
Woods v. Security First Nat’l Bank
, 46 Cal.2d
697, 701,
Standing to Raise Section 852
Wife contends Govgassian and Agadjanian do not have standing to challenge the validity of the marital property agreement under section 852. [6] We agree.
*18 A. Third Party Standing Depends on Whether a Defective Transmutation is Void or Merely Voidable
“In general, California law does not give a party
personal standing to assert rights or interests belonging
solely to others. (See Code Civ. Proc., § 367 [action must be
brought by or on behalf of the real party in interest];
Jasmine Networks, Inc. v. Superior Court
(2009) 180
Cal.App.4th 980, 992.)” (
Yvanova v. New Century Mortgage
Corp.
(2016)
“A void contract is without legal effect. (Rest.2d
Contracts, § 7, com. a, p. 20.) ‘It binds no one and is a mere
nullity.’ (
Little v. CFS Service Corp.
(1987) 188 Cal.App.3d
1354, 1362.) ‘Such a contract has no existence whatever. It
has no legal entity for any purpose and neither action nor
inaction of a party to it can validate it . . . .’ (
Colby v. Title
Ins. and Trust Co.
(1911)
“A voidable transaction, in contrast, ‘is one where one or more parties have the power, by a manifestation of election to do so, to avoid the legal relations created by the time on appeal is a pure question of law applied to undisputed facts.’”].)
contract, or by ratification of the contract to extinguish the
power of avoidance.’ (Rest.2d Contracts, § 7, p. 20.) It may
be declared void but is not void in itself. (
Little v. CFS
Service Corp.
,
supra
,
Only the contracting parties have the power to ratify or
avoid a voidable agreement; “ the transaction is not void
unless and until one of the parties takes steps to make it so. ”
(
Yvanova
,
supra
,
B. The Statutory Language of Section 852 Supports an Interpretation that Defective Transmutations are Voidable, not Void Section 852 provides that a transmutation is “ not valid” unless made in a writing meeting the statutory *20 requirements. We must determine the meaning of the phr ase “not valid” within the context of section 852.
“Not valid” does not necessarily mean “void.” (See
Guthman v. Moss
(1984)
“Unless a statute expressly deprives the parties of their
right to sue on a contract made in violation of that statute,
the right to recover on the contract will not be denied, if
denial of recovery would be out of proportion to the demands
of public policy. (6 Williston (4th ed. 1995) Illegal
Agreements, § 12:4, pp. 47 –51.) ‘Thus, unless no other
conclusion is possible from the words of a statute, it should
not be held to make agreements contravening it totally void.’
(
Ibid.
)” (
Residential Capital v. Cal-Western Reconveyance
Corp.
(2003)
Section 852 does not expressly provide that a defective
transmutation is “void.” Section 852 is a “statute of frauds”
for the property transmutations of married people. (
Sterling
v. Taylor
(2007)
C. Contracts Violating Similar Statutes of Frauds are Voidable
Our interpretation of the phrase “not valid” in section
852 is supported by case law interpreting the term “ invalid ” in similar statutes. “‘ The meaning of the language of the
statute can appear either on [its face] or from any
“ established . . . common law meaning. ” [Citation.] ’ (
People
v. Mirmirani
(1981)
California’s statute of frauds, Civil Code section 1624, subdivision (a) provides, “ The following contracts are invalid, unless they, or some note or memorandum thereof, are in writing and subscribed by the party to be charged . . . .” It is well established under California law that “ a contract falling within the operation of the statute, but made in contravention thereof, is not invalid in the sense that it is void. It is merely voidable.” ( O’Brien v. O’Brien (1925) 197 Cal. 577, 586; see also Ayoob v. Ayoob (1946) 74 Cal.App.2d 236, 242 ( Ayoob ).) “‘Such a contract, if otherwise valid, remains so, and the sole effect of the statute is to render it unenforceable by one party against the will of the other who abandons or repudiates it.’ [Citations.]” ( O’Brien , supra , at p. 586.)
“S imilarly, in
Estate of Reardon
(1966) 243 Cal.App.2d
221, 229, the court held: ‘The word[ ] . . . “invalid,” when
appearing in statutes which are not for the benefit of the
public at large, [is] regarded as equivalent to “voidable”
where none other than a particular person or class of
persons is the object of the statutory protection.’ Thus, the
idea that invalid may mean voidable only is not novel to
California law. And, when legislation has been applied in
judicial decisions and then a subsequent statute on an
analogous subject employs identical language, it is presumed
that the Legislature intended the language be given a like
interpretation in applying the new enactment. (
Nishikawa
*23
Farms, Inc. v. Mahony
(1977)
A transferee or successor in interest to the rights of the
contracting party , such as the party’s grantee, heir, or
personal representative, can take advantage of the statute of
frauds in the same manner as the contracting party could
have. (
O’Banion v. Paradiso
(1964)
The California Supreme Court’s decision i n Benson does not alter our conclusion that a marital property agreement in violation of Section 852 is merely voidable. The Benson court found that the Legislature did not intend to incorporate traditional exceptions to the general statute of frauds, such as part performance, as a substitute for Section 852’s requirement of an express written statement . ( Benson , supra , 36 Cal.4th at pp. 1100, 1109.) “By insisting upon a special writing expressly changing the character of the disputed property, MacDonald all but decided the section 852(a) is not satisfied where no such writing exists at all.” ( Id. at p. 1100.) However, the court’s holding that section 852 is not satisfied by anything less than an express *24 declaration in writing does not preclude the statute from allowing parties to affirm or ratify a defective transmutation through a subsequent agreement that meets the writing requirements of the statute.
Contracts violating a similar writing requirement
enacted for the protection of spouses in section 1102,
formerly Civil Code section 5127, have been interpreted to be
voidable, rather than void. Under section 1102, an
instrument selling, conveying, encumbering, or leasing
community property for more than one year must be
executed by both spouses. (§ 1102, subd. (a).) An
instrument that falls within section 1102 which is not signed
by both spouses is not void, however, but merely voidable.
(
Clar v. Cacciola
(1987)
Govgassian and Agadjanian cannot invalidate the marital property agreement under section 852. To the extent the terms of the marital property agreement are ambiguous, the intent of the parties should be determined on remand in accordance with ordinary principles of contract interpretation.
DISPOSITION The post-judgment order granting a protective order is reversed and remanded for further proceedings. Appellant Rose Safarian is awarded her costs on appeal.
MOOR, J.
We concur:
RUBIN P. J.
BAKER, J.
Notes
[1] All further statutory references are to the Family Code unless otherwise specified.
[2] Because we conclude Govgassian and Agadjanian do
not have standing to raise section 852, we need not address
whether the principles that typically apply to interpret a
contract in the absence of extrinsic evidence also apply to
determine the validity of a transmutation under section 852.
These principles include the fundamental goal of contract
interpretation “to give effect to the mutual intention of the
parties.” (Ci v. Code, § 1636;
Bank of the West v. Superior
Court
(1992)
[3] Section 850 provides: “Subject to Sections 851 to 853, inclusive, married persons may by agreement or transfer, with or without consideration, do any of the following: [¶] (a) Transmute community property to separate property of either spouse. [¶] (b) Transmute separate property of either spouse to community property. [¶] (c) Transmute separate property of one spouse to separate property of the other spouse.”
[4] Section 852 provides in full: “(a) A transmutation of real or personal property is not valid unless made in writing by an express declaration that is made, joined in, consented
[5] “
MacDonald
,
supra
,
[6] Although Wife did not specifically raise the issue of standing in the trial court, both parties agree this court has discretion to consider this threshold issue on appeal. ( In re Marriage of Oliverez (2019)33 Cal.App.5th 298 , 316, citing San Mateo Union High School Dist. v. County of San Mateo (2013)213 Cal.App.4th 418 , 436 [“‘even where a legal argument was not raised in the trial court, we have discretion to consider it when the theory raised for the first