Marriage of Ito and Johnson

Filed 9/27/06 Marriage of Ito and Johnson CA1/5

NOT TO BE PUBLISHED IN OFFICIAL REPORTS

California Rules of Court, rule 977(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 977(b). This opinion has not been certified for publication or ordered published for purposes of rule 977.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

FIRST APPELLATE DISTRICT

DIVISION FIVE

In this marital dissolution action, husband and wife are attorneys who, prior to separation, worked together at their jointly owned law firm, Ito & Johnson (I & J). Appellant Mark Johnson challenges the trial court’s award to respondent Charlotte K. Ito of a portion of the fees earned in certain cases he asserts were distributed to him postseparation. Johnson relies on certain admissions made by Ito during discovery to argue that the trial court erred in allowing Ito to contest his right to these fees at the trial. Johnson also contends the trial court erred in its valuation of a community car and its denial of his posttrial motions. We disagree with his contentions and affirm.

Factual Background

Johnson and Ito were married in 1987 and separated on February 5, 2001 when Ito filed a petition for dissolution. Shortly after separation, Ito was hired by the law firm of Howard, Rice, Nemerovski, Canady, Falk & Rabkin (Howard Rice) on the condition that she not bring any of her current clients with her. At Howard Rice, she was an at-will employee without tenured rights. After obtaining employment with Howard Rice, Ito wrote the former clients of I & J, notifying them of the firm’s dissolution and giving them the option to stay with Johnson, go to a new firm or pick up their files. Client files not initially transferred to Johnson or returned to clients were stored by Howard Rice. During this period, Johnson had access to the files and, when needed, Ito would send copies of files to Johnson.

Robert Castle, a certified public accountant, was appointed as the receiver to take possession of I & J assets. Castle collected money from I & J receivables that were accumulated after separation. On January 29, 2002, Johnson sent the receiver a letter emphasizing the receiver’s duty to collect all I & J income received by Ito and to inform Johnson if Ito failed to turn over “all income received from her new firm.” On the same day, Ito’s attorney responded: “[I & J] has an interest in all revenues generated by work prior to the date of the firm’s dissolution. Thereafter, it has no interest in any revenues generated from any of those clients, whether they went with [Johnson], with [Ito], or with another firm.” In a footnote, Ito’s attorney noted: “The fee to be received from the cases on appeal [Estate of Leleu] is not an exception, but is a special case. This is akin to a contingent fee which is allocated based on efforts before and after separation. (See In re Marriage of Kilbourne (1991) 232 Cal.App.3d 1518 and Waters v. Waters (1946) 75 Cal.App.2d 265.)”

The receivership was terminated by stipulation on February 3, 2003, and the collected law firm receivables were transferred to a blocked joint savings account. Until early 2004, Ito was collecting I & J fees and depositing them into this blocked account. These moneys were divided in the dissolution judgment on reserved issues.

The Estate of Leleu was an I & J contingency fee case. Ito listed an anticipated fee of $1 million as an asset on the schedule of assets and debts of her preliminary declaration of disclosure dated June 25, 2001. Johnson’s schedule of assets and debts as of February 2, 2002, stated: “In the Matter of the Estate of Henri Leleu Deceased and its related cases, all . . . are contingency cases, the value on the date of separation is zero.”

In February 2002, Johnson propounded requests for admissions upon Ito regarding I & J cases she had taken with her to Howard Rice: “8. [Ito] took community property, to include all the [I & J] clients with a net worth of greater than [$5 million] and other tangible and intangible property including goodwill, to her new work at [Howard Rice]. 9. [Howard Rice] has not compensated [I & J] for the community property, to include all the Ito and Johnson clients with a net worth of greater than [$5 million] and other tangible and intangible property including goodwill, [Ito] brought to [Howard Rice]. 10. [Ito] took no community property to her new work at [Howard Rice].”

On February 12, 2002, Ito provided the following responses: “(3) [I & J] was dissolved and the assets of the firm equally divided between the partners. . . . (5) The clients of the former law firm of [I & J] were free to go with [Ito], [Johnson] or any other attorney or firm. (6) The earnings of each party after their date of separation are their respective separate property. (7) [I &J] has no contractual right to any portion of fees generated from any client after the dissolution of the law firm.” (Italics added.)

On March 21, 2002, Ito responded to another of Johnson’s requests for admissions: “The Leleu matters represent cases of the law firm of [I & J] on which work was expended before and after the parties’ date of separation and the dissolution of the law firm of [I & J]. The fees to be received therefrom, if any, are contingency fees. Thus, to the extent that [Johnson] does work on said cases after the parties’ date of separation and/or the dissolution of the law firm, then he has a separate property interest in the fees recovered. However, the other partner/spouse also has an interest in those fees recovered representing an apportionment of the fees based upon a number of factors, including the time expended thereon before and after separation. (See Waters v. Waters (1946) 75 Cal.App.2d 265 and In re Marriage of Kilbourne (1991) 232 Cal.App.3d 1518.)”

On March 26, 2002, Johnson’s attorney informed the trial court that the case had been lost and was worthless: “[Johnson’s counsel]: . . . First of all, the million-dollar-fee case [Estate of Leleu] was lost. [Johnson] represents--the appellate case was decided against him. The value of the case, that’s been lost and taken up on appeal, is probably zero . . . . So someone looking at the case for an evaluation would think that, perhaps, it will have little or no value; but there is a fiduciary duty to the client to go forward with that case. It is not a voluntary decision; it is a decision to go forward and represent your client as an ethical consideration that we, as lawyers, are required to make.”

Ito’s schedule of assets and debts as of April 16, 2003, no longer listed the Estate of Leleu. Instead, it declared as community property “[r]esidual [I & J] receivables: [Current Gross Fair Market Value] TBD.” Her final declaration of disclosure, dated August 28, 2003, no longer listed any I & J assets, but rather listed only the blocked account into which the converted I & J receivables had been deposited. On October 20, 2003, Johnson filed a schedule of assets and debts in which he alleged no separate property.

In March 2004, Ito learned from another lawyer involved in the Leleu case that fees were being distributed. She had also learned that a court had ordered a former client of I & J, the estate of Hong, to pay the firm approximately $13,000.

In June 2004, Ito obtained an order compelling Johnson to deposit fees from I & J cases into the blocked account and to inform Ito and the court of all fees received or costs recovered on matters pending at the time of the dissolution of I & J. Ito also obtained a discovery order compelling Johnson to produce his law firm financial records so she could determine the appropriate allocation of the Leleu fee and if Johnson had received any other I & J fees.

After Johnson refused to produce any documents in response to the discovery order, Ito filed a motion for sanctions. At a hearing on July 27, 2004, Johnson’s attorney represented to the court that Johnson had no documents with which to respond to the discovery order as he did not keep time records, calendars or any other written records as to the time or costs he expended on any I & J clients he had represented since separation. At the conclusion of the hearing, the court accepted that representation and denied Ito’s motion for discovery sanctions. This effectively precluded Johnson from introducing any documentary evidence at the trial as to his postseparation work for former I & J clients.

At the July 2004 hearing, the trial court also considered and rejected a motion filed by Johnson, in which he relied on Ito’s admissions to argue she should be barred from offering evidence at trial on the issue of fees Johnson had collected after separation. Thus, as a result of the court’s rulings following the July 2004 hearing, Johnson, but not Ito, was sharply restricted in the evidence that could be presented to support a claim to the Leleu and Hong fees.

On March 3, 2005, the trial court issued its statement of decision on the reserved issues. Among other findings, the court found that Johnson had failed to carry his burden of proof to establish that a portion of the fees in the Leleu and Hong cases were his separate property. The court then held that both fees were 100 percent community property. After the trial court found the Leleu fee to be community property, Ito moved for an order to divide the fee with each party owning his or her share as separate property. The court ordered the fee divided in-kind up to $385,528.93. By stipulation, any fees generated in excess of that amount were Johnson’s separate property.

Ito kept possession of a community automobile after separation. On the date of separation it had a value of approximately $14,260. By August 2003, it had a value of $4,120. The trial court adopted the lower value for the automobile, because it reflected the valuation on the date closest to trial.

Subsequent to trial, Johnson filed a motion for damages containing 10 causes of action and a motion to vacate the judgment. Both were denied.

Johnson filed a timely notice of appeal.

Discussion

Community Law Firm

Johnson argues Ito’s admission that the community law firm assets were equally divided conclusively established that the Hong and Leleu fees were Johnson’s separate property. He contends the trial court effectively permitted Ito to withdraw her admission without complying with Code of Civil Procedure section 2033.300. We disagree.

Although a judicial admission is conclusive of the fact admitted (Code Civ. Proc., § 2033.410; Burch v. Gombos (2000) 82 Cal.App.4th 352, 359; Weil, Brown & Rylaarsdam, Cal. Practice Guide: Civil Procedure Before Trial (The Rutter Group 2006) 8:1387, p. 8G-31), the trial court retains the discretion to determine the scope and effect of an admission, especially where an admission is misleading or susceptible to different meanings (Fredericks v. Konstos Industries, Inc. (1987) 189 Cal.App.3d 272, 277 (Fredericks); Weil, Brown & Rylaarsdam, Cal. Practice Guide: Civil Procedure Before Trial (The Rutter Group 2006) 8.1390-8.1390.5, pp. 8G-32-8G-33.)

In Fredericks, a party responded to a request for admissions by admitting that he had agreed to make contractual payments according to a payment schedule. (Fredericks, supra, 189 Cal.App.3d at p. 276.) Nevertheless, despite the admissions, the trial court properly admitted parol evidence explaining the party’s understanding of the progress payment schedule. (Id. at pp. 277-278.) The appellate court stated: “Although admissions are dispositive in most cases, a trial court retains discretion to determine their scope and effect. An admission of a fact may be misleading. In those cases in which the court determines that an admission may be susceptible of different meanings, the court must use its discretion to determine the scope and effect of the admission so that it accurately reflects what facts are admitted in the light of other evidence.” (Id. at p. 277.) Further, “[t]he court must have discretion to admit evidence to elucidate and explain an admission, because the admission of a fact does not always reflect the party’s reasonable understanding of that fact.” (Id. at p. 278.)

There is no dispute that, postseparation, Johnson had responsibility for handling both the Leleu and Hong cases. Further, Ito admitted “(3) Ito and Johnson was dissolved and the assets of the firm equally divided between the partners. . . . (5) The clients of the former law firm of Ito & Johnson were free to go with [Ito], [Johnson] or any other attorney or firm. (6) The earnings of each party after their date of separation are their respective separate property. (7) Ito & Johnson has no contractual right to any portion of fees generated from any client after the dissolution of the law firm.”

Johnson argues that the first of these admissions, number (3), conclusively establishes his right to all fees generated by the Hong and Leleu cases, which were distributed to him, whether the work he performed occurred before or after separation. Even if this is a reasonable interpretation, the final two referenced admissions, number (6) and (7), create an ambiguity because they imply that fees earned preseparation are community property. Thus, the trial court acted well within its discretion in “admit[ting] evidence to elucidate and explain [the] admission . . . .” (Fredericks, supra, 189 Cal.App.3d at p. 278.)

That evidence strongly supported the limited scope given the admissions by the trial court. On January 29, 2002, less than two weeks before her admissions, Ito explained her understanding of the postseparation division of the firm’s assets in a letter to Johnson: “[I & J] has an interest in all revenues generated by work prior to the date of the firm’s dissolution. Thereafter, it has no interest in any revenues generated from any of those clients, whether they went with [Johnson], with [Ito], or with another firm. [Fn.] The fee to be received from the cases on appeal is not an exception, but is a special case. This is akin to a contingent fee which is allocated based on efforts before and after separation. (See In re Marriage of Kilbourne (1991) 232 Cal.App.3d 1518 and Waters v. Waters (1946) 75 Cal.App.2d 265.)”

In a March 21, 2002 response to Johnson’s additional request for admissions, Ito stated: “The Leleu matters represent cases of the law firm of [I & J] on which work was expended before and after the parties’ date of separation and the dissolution of the law firm of [I & J]. The fees to be received therefrom, if any, are contingency fees. Thus, to the extent that [Johnson] does work on said cases after the parties’ date of separation and/or the dissolution of the law firm, then he has a separate property interest in the fees recovered. However, the other partner/spouse also has an interest in those fees recovered representing an apportionment of the fees based upon a number of factors, including the time expended thereon before and after separation. (See Waters v. Waters (1946) 75 Cal.App.2d 265 and In re Marriage of Kilbourne (1991) 232 Cal.App.3d 1518.)” Finally, for over two years following the admissions at issue, Ito collected I & J fees and deposited them into the blocked account containing firm receivables. Such evidence clarifies Ito’s understanding at the time of the admission that all I & J fees collected by either partner after separation were to be deposited into their blocked account and eventually distributed based on the timing of the work performed, according to established case law.

“The more narrow the language in the request for an admission, the less opportunity the court has to determine its scope and effect.” (Fredericks, supra, 189 Cal.App.3d at p. 277.) Johnson’s request did not directly address how the parties intended to distribute fees collected after separation, but rather dealt with whether Ito had taken I & J clients to her new firm. Thus, the wording of the admissions request led to the ambiguity in the response provided. That ambiguity justified the court’s ruling permitting Ito to introduce additional evidence relevant to the scope and effect of the admission.

Community Automobile

Johnson argues the community automobile should have been valued at the date of separation rather than at the date of trial due to Ito’s postseparation use of the car. We disagree.

Family Code section 2552 states: “(a) For the purpose of division of the community estate upon dissolution of marriage . . . the court shall value the assets and liabilities as near as practicable to the time of trial. (b) Upon 30 days’ notice by the moving party to the other party, the court for good cause shown may value all or any portion of the assets and liabilities at a date after separation and before trial to accomplish an equal division of the community estate of the parties in an equitable manner.”

The trial court made the following findings relevant to the community car: “Both parties utilize the Kelley Blue Book value as the basis for their opinion of value. The dispute here is over the date of valuation. Assets are to be valued on a date as near as practicable to the date of trial. (Fam. Code, § 2552.) No one made a motion for an alternate valuation date; hence, the Court adopts [Ito’s] value of $4,120. [Johnson] is to sign the documents necessary to remove his name from title.”

We agree with the trial court’s reasoning: Family Code section 2552 demands that community property be valued at the time of trial absent a motion for a different valuation date. Johnson failed to make such a motion.

Postjudgment Motions

Following the trial court’s judgment, Johnson filed a motion to vacate judgment and a motion for damages and the court denied each. On appeal, Johnson argues the trial court abused its discretion in denying his motion to vacate, but the argument is somewhat difficult to decipher. He appears to rely on Family Code section 2121,^[1] which permits a trial court to relieve a spouse from a judgment adjudicating the division of property based on certain grounds, and Family Code section 2122,^[2] which articulates the grounds for relief. Johnson, however, does not cite either of these code sections or discuss the cases analyzing their provisions, though he does quote extensively from Family Code section 2120, which sets out certain legislative findings and declarations explaining the need to provide special rules for relief from judgment in the Family Code.^[3] This failure to provide a cogent argument supported by appropriate legal authority waives the contention on appeal. (Associated Builders & Contractors, Inc. v. San Francisco Airports Com. (1999) 21 Cal.4th 352, 366, fn. 2; Berger v. California Ins. Guarantee Assn. (2005) 128 Cal.App.4th 989, 1007; Eisenberg et al., Cal. Practice Guide: Civil Appeals and Writs (The Rutter Group 2005) 9:21, p. 9-6.)

Even if we were to address the issue on its merits, we would uphold the decision denying the motion to vacate. The trial court’s exercise of discretion in refusing to set aside a judgment under Family Code section 2122 is reviewed under an abuse of discretion standard. (In re Marriage of Rosevear (1998) 65 Cal.App.4th 673, 682-683 (Rosevear); In re Marriage of Varner (1997) 55 Cal.App.4th 128, 138 (Varner).) Under this standard, we do not merely substitute our own view as to the proper decision: “‘[T]he showing on appeal is wholly insufficient if it presents a state of facts . . . which . . . merely affords an opportunity for a difference of opinion. An appellate tribunal is neither authorized nor warranted in substituting its judgment for the judgment of the trial judge.’ [Citation.]” (Varner, supra, at p. 138.) Moreover, a trial court order denying a motion to set aside under Family Code section 2122 “will not be disturbed on appeal in the absence of a clear showing of abuse, resulting in injury sufficiently grave as to amount to a manifest miscarriage of justice.” (Rosevear, supra, at p. 682.)

Johnson contends that following the trial he learned that Ito had concealed material facts and information regarding the client files she had taken at separation. Specifically he claimed “11 of the original file boxes containing 60 of community law firm’s highest net worth estate planning client were missing.” But the trial court was entitled to conclude that Johnson knew Ito had the files following the dissolution of I & J, was provided access to them and could have determined their status prior to trial. Further, the trial court was entitled to conclude from the evidence that the “missing” files had in fact been provided to either Johnson or the clients themselves following dissolution of I & J and that Johnson was aware of this. No abuse of discretion has been shown.

Johnson also claims that the motion should have been granted because Ito “used the community law firm property for her own use in obtaining a job at Howard Rice, used it for purposes unconnected with the benefit of the community, and took part in transactions transferring the property to third parties adverse to . . . Johnson’s benefit . . . breach[ing] her fiduciary duty . . . .” But evidence that Ito’s job offer from Howard Rice was conditioned on her not bringing any of the I & J clients with her was sufficient to justify the court’s rejection of this claim by Johnson. No abuse of discretion has been shown.

Johnson’s argument that the motion for damages was improperly denied is premised on the contention that Ito concealed law firm assets, and references the same 60 “valuable” client files relied on in his argument regarding the motion to vacate. For the reasons discussed above, we reject his claim that the trial court abused its discretion in denying this motion.

Disposition

The judgment is affirmed. Ito shall be awarded her costs on appeal.^[4]

SIMONS, J.

We concur.

JONES, P.J.

GEMELLO, J.

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^[1] Family Code section 2121 provides:

“(a) In proceedings for dissolution of marriage, for nullity of marriage, or for legal separation of the parties, the court may, on any terms that may be just, relieve a spouse from a judgment, or any part or parts thereof, adjudicating support or division of property, after the six-month time limit of Section 473 of the Code of Civil Procedure has run, based on the grounds, and within the time limits, provided in this chapter.

“(b) In all proceedings under this chapter, before granting relief, the court shall find that the facts alleged as the grounds for relief materially affected the original outcome and that the moving party would materially benefit from the granting of the relief.”

^[2] Family Code section 2122 provides:

“The grounds and time limits for a motion to set aside a judgment, or any part or parts thereof, are governed by this section and shall be one of the following:

“(a) Actual fraud where the defrauded party was kept in ignorance or in some other manner was fraudulently prevented from fully participating in the proceeding. An action or motion based on fraud shall be brought within one year after the date on which the complaining party either did discover, or should have discovered, the fraud.

“(b) Perjury. An action or motion based on perjury in the preliminary or final declaration of disclosure, the waiver of the final declaration of disclosure, or in the current income and expense statement shall be brought within one year after the date on which the complaining party either did discover, or should have discovered, the perjury.

“(c) Duress. An action or motion based upon duress shall be brought within two years after the date of entry of judgment.

“(d) Mental incapacity. An action or motion based on mental incapacity shall be brought within two years after the date of entry of judgment.

“(e) As to stipulated or uncontested judgments or that part of a judgment stipulated to by the parties, mistake, either mutual or unilateral, whether mistake of law or mistake of fact. An action or motion based on mistake shall be brought within one year after the date of entry of judgment.

“(f) Failure to comply with the disclosure requirements of Chapter 9 (commencing with Section 2100). An action or motion based on failure to comply with the disclosure requirements shall be brought within one year after the date on which the complaining party either discovered, or should have discovered, the failure to comply.”

^[3] We note that in the trial court, Johnson’s motion to vacate relied on Code of Civil Procedure sections 473 and 663 and Family Code sections 2120 and 2556. Only Family Code section 2120 is mention in his briefing in this court and we treat arguments related to the other statutory provisions as waived. (Tiernan v. Trustees of Cal. State University & Colleges (1982) 33 Cal.3d 211, 216, fn. 4; Reyes v. Kosha (1998) 65 Cal.App.4th 451, 466, fn. 6; Eisenberg et al., Cal. Practice Guide: Civil Appeals and Writs, supra, 9:21, p. 9-6.)

^[4] Ito seeks sanctions against Johnson under California Rules of Court, rule 27(e) and In re Marriage of Flaherty (1982) 31 Cal.3d 637, 649 (Flaherty). We deferred our ruling on Ito’s sanctions motion pending our consideration of the merits of the appeal. Sanctions may be imposed for appeals that are frivolous or taken solely for purposes of delay. (Cal. Rules of Court, rule 27(e)(1); Flaherty, supra, 31 Cal.3d at p. 650.) While Johnson’s analysis of the issues was not persuasive, we cannot say that his position is frivolous. Nor has Ito established that Johnson appealed solely for purposes of delay. Further, Ito failed to establish Johnson’s violation of California Rules of Court, rule 27(e) on any other ground. Ito’s motion for sanctions is denied.