| [1] | Court of Appeal, Second District Division 8, California. |
| [2] | No. B179751. |
| [3] | 139 Cal.App.4th 712, 43 Cal.Rptr.3d 181 |
| [4] | May 18, 2006. |
| [5] | In re MARRIAGE OF Janet E. and Ronald W. BURKLE. Janet E. Burkle, Appellant, v. Ronald W. Burkle, Respondent. |
| [6] | Philip Kaufler, Hugh John Gibson, Beverly Hills, and Hillel Chodos, for Plaintiff and Appellant. Wasser, Cooperman & Carter, Dennis M. Wasser and Bruce E. Cooperman, Los Angeles; Greines, Martin, Stein & Richland and Irving H. Greines, Los Angeles; Christensen, Miller, Fink, Jacobs, Glaser, Weil & Shapiro and Patricia L. Glaser, Los Angeles, for Defendant and Respondent. |
| [7] | BOLAND, J. |
| [8] | SUMMARY |
| [9] | The issue in this case is the enforceability of a post-marital agreement. We
affirm the trial court's order finding the agreement valid and enforceable.
Our conclusions are:
. A presumption of undue influence does not arise in an interspousal
transaction unless one spouse obtains an unfair advantage or obtains property
for which no or clearly inadequate consideration has been given. The
presumption does not apply to a post-marital agreement in which both spouses
obtain advantages; both are represented by independent and competent
legal counsel; the wife is offered full access to the husband's business
records relating to the marital assets; and both spouses acknowledge in the
agreement that neither has obtained any unfair advantage as a result of the
agreement.
. Even if a presumption of undue influence applied to the parties'
post-marital agreement and the trial court erred in allocating to the wife the
burden of proving the agreement was invalid, substantial evidence supported
the trial court's finding that the credible evidence "established
overwhelmingly" that the agreement was not procured by undue influence.
. The wife's claim that the post-marital agreement was procured by the husband
through actual fraud, by reason of his failure to provide written information
to her on the effects of a prospective merger that would later affect the
value of marital assets, is without merit.
. Family Code sections 2104 and 2105, requiring parties to a marital
dissolution action to serve preliminary and final verified declarations
disclosing all assets and liabilities, do not apply to spouses who negotiate
and execute a post-marital agreement while a dissolution proceeding is in
abeyance, and the spouses are attempting to reconcile rather than
contemplating the imminent dissolution of the marriage.
. The wife's claim that she properly rescinded the post-marital agreement for
"non-performance and failure of consideration" is without merit, because the
wife repudiated the agreement in her dissolution petition, excusing further
performance by the husband pending judicial determination of the validity of
the agreement.
. The doctrines of ratification and estoppel preclude the wife from claiming
the post-marital agreement is unenforceable. |
| [10] | |
| [11] | FACTUAL AND PROCEDURAL BACKGROUND |
| [12] | Ronald W. Burkle and Janet E. Burkle were married on March 23, 1974. In
April 1997, Ms. Burkle hired a personal attorney who assisted her in
interviewing and obtaining family law counsel. In May, Ms. Burkle retained
Barry T. Harlan, a certified family law specialist with more than 30 years of
legal experience, and in June 1997 she filed a petition for dissolution of the
marriage. Ms. Burkle was also advised by two other certified family law
specialists, as well as by other lawyers in Harlan's firm with expertise in
tax law, real estate law and other areas. She engaged forensic accountants
(Gursey, Schneider & Co.) and hired a private investigative firm. After Ms.
Burkle's petition was filed, Mr. Burkle engaged David S. Karton to represent
him in the dissolution proceeding. |
| [13] | The marriage did not proceed to dissolution in 1997. Instead, by August
1997, both parties were seriously considering an effort to reconcile, coupled
with a post-marital agreement that would resolve all present and future
financial issues between them. The parties resumed living together in
September 1997, and executed a post-marital agreement in November 1997.
According to Ms. Burkle, they lived together until April 2002. On June 13,
2003, Ms. Burkle filed the current petition for dissolution of marriage, in
which she contends the post-marital agreement is void and unenforceable. |
| [14] | We first describe the post-marital agreement, and then turn to the events
surrounding its execution and the subsequent proceedings leading to this
appeal, including the relevant findings and conclusions of the trial
court. |
| [15] |
I. The post-marital agreement. |
| [16] | In broad strokes, the significant financial effects of the agreement executed
by the Burkles in November 1997 were these:
. Schedules were prepared by Mr. Burkle listing and valuing community property
assets (Schedule A) and assets he claimed as separate property (Schedule C),
as of June 6, 1997. As to these schedules:
The community property schedule showed property with a tax-effected fair
market value of $60,028,267.
The property listed as separate was acquired during a five-year period
between 1992 and 1997, during which Mr. Burkle contended the parties had lived
separate and apart (a contention disputed by Ms. Burkle), and was valued at a
tax-effected fair market value of $86,755,898.*fn1 |
| [17] | |
| [18] | . All appreciation and income from the community property accruing from the
date of the agreement were to be Mr. Burkle's separate property.
. Mr. Burkle was to pay Ms. Burkle, on the anniversary date of the agreement
for every year (or pro rata portion) the parties lived together, one million
dollars in cash or negotiable securities, deemed her distributive share of the
appreciation and income from community assets for the preceding year, and
considered her separate property upon receipt.
. If either party sought a dissolution of the marriage, or elected a division
of the community property, then:
Mr. Burkle would be awarded, as his share of the community assets, all the
assets on the community property schedule and/or all assets acquired with any
proceeds derived from those assets.
Ms. Burkle would be awarded, as her share of the community assets, in cash
and tax free, $30,014,134 (50% of the total net value as of the date of the
agreement, adjusted for liabilities and tax consequences), plus five percent
simple interest per annum accruing from the date of the agreement. Of
this amount, Mr. Burkle would pay Ms. Burkle (a) $5 million within 90 days of
service of a petition for dissolution (or written notice of an election to
divide the community property); (b) $5 million with 90 days after the first
payment; and (c) $10 million on each annual anniversary date of the second $5
million payment, until paid in full.
. Mr. Burkle was given sole management and control over all community property
as if it were his separate property, with no duty to account for the community
assets so long as he made the agreed annual million-dollar payments to Ms.
Burkle.
. If either party sought a dissolution of the marriage or elected a division
of community property, Mr. Burkle was to purchase a residence for Ms. Burkle,
selected by her, provided the residence was within three miles of the
residence in which the parties were then living. The cost was to be the
amount necessary to purchase a residence valued at up to $3 million as
of June 1997.
. Mr. Burkle was obligated to pay all family living expenses, described as "
all expenses necessary to maintain the Parties and the Parties' minor children
in a lifestyle consistent with that which each of them has maintained while
living separate and apart during the last five (5) years." The agreement
recited that Mr. Burkle had paid, as Ms. Burkle's marital living expenses
during that period, an amount between $400,000 and $500,000 per year, net of
taxes, an amount Ms. Burkle acknowledged had "more than adequately maintained
her in her desired lifestyle."
. Ms. Burkle waived any rights to spousal support. |
| [19] |
The post-marital agreement was initially drafted in August 1997, and was
signed by Ms. Burkle on November 5, 1997 and by Mr. Burkle on November 21,
1997. The parties initialed each page of the agreement. It was also signed
by Harlan, Ms. Burkle's attorney, who certified that he had fully explained to
Ms. Burkle the effect the agreement had upon the rights she would otherwise
have as a matter of law, and that she acknowledged to him that she understood
the legal effect of the agreement. The agreement included a statement of
intent and other recitals and provisions, including the following:
. Ms. Burkle desired financial security and assurance she would be able
to enjoy her present lifestyle without hindrance or risk of loss.*fn2 |
| [20] | |
| [21] | . Mr. Burkle desired the financial freedom to make investments that could
yield high returns but which carried the risk of significant loss.
. If the parties were ultimately unable to reconcile their differences and
either of them desired to dissolve the marriage, both parties wanted the
agreement to fully resolve all possible financial issues so they would be
spared the financial and emotional costs of litigation.
. The parties had been living separate and apart for approximately five years.
They disputed the legal effect of their separate residences, and
acknowledged the dispute would create a substantial difference in the value of
the community estate, depending on which party prevailed.
. The parties acknowledged that:
They discussed with their respective legal counsel, "at length, numerous
alternatives available with respect to the form and substance of a postmarital
agreement, and that they have adopted the provisions of this agreement after
careful consideration of such available alternatives."
They were aware that the assets on Schedules A and C "may, and probably
will, increase dramatically in value in the future and that Jan's interest
therein is being fixed at this time, notwithstanding the possibility of future
increases."
They had the right to conduct formal discovery in the dissolution
proceeding, and voluntarily elected to forego such discovery.
They did not rely on any statement, warranty or representation of the other
party, except as stated in the agreement, "as being a representation upon
which reliance was based in agreeing to" the post-marital agreement.
Neither party had obtained any unfair advantage as a result of the
agreement.
No presumption concerning the fiduciary duty owed by one spouse to
another (Fam.Code, §§ 721 & 1100) would be applicable to the
agreement, and the benefits of any such presumptions were waived.
. Ms. Burkle acknowledged that her attorneys and accountants "have had a
minimum of six (6) months to conduct independent investigations, analysis and
review of transactions in order to determine the extent and value of all
assets and liabilities of the Parties."
. The parties agreed, as to the disclosure of assets, that:
The purpose of the disclosure schedules was "to identify the assets and
liabilities of the Parties as accurately as possible in order to arrive at an
equitable, mutually agreeable division of these assets...."
Mr. Burkle had made "a good faith estimate of what he believes to be the
reasonable value" of the assets on schedules A and C, and that the notes to
those schedules further amplified the assumptions on which his estimates were
premised.
Ms. Burkle acknowledged she had had "the opportunity to do as much
independent discovery, appraisal and valuation of the assets ... as she wishes
and that she has not relied on the word of Ron in determining the value of the
assets set forth therein."
The parties were aware of the rights and duties of a spouse exercising
unilateral management and control of community assets under the Family Code (
Fam.Code, § 1100 et seq.), and waived those provisions, specifically
stating that: "It is understood that for the purposes of negotiating and
preparing this Agreement, Jan is not acting as a fiduciary for Ron and Ron is
not acting as a fiduciary for Jan."
The parties understood there is a substantial issue under California law as
to whether public policy allowed them to contract for a release of their
fiduciary responsibilities to each other, and nonetheless voluntarily did so. |
| [22] | |
| [23] | II. Subsequent events and proceedings. |
| [24] | As mentioned above, the parties lived together for more than four years after
executing the agreement, until (according to Ms. Burkle) April 2002. In June
2003, Ms. Burkle filed a petition for dissolution of the marriage in
which she asserted the agreement was void and unenforceable. The parties
stipulated to the appointment of retired judge Stephen M. Lachs, as a
privately compensated judge pro tempore, to hear and determine all disputes
arising from the post-marital agreement, including its validity and
enforceability. Judge Lachs was also charged with resolving all other issues
arising from the marital relationship, including child custody, child and
spousal support, property rights, and so on. The parties stipulated that an
evidentiary hearing focusing on the validity and enforceability of the
post-marital agreement would constitute a bifurcated trial on that issue. |
| [25] | Ms. Burkle sought to compel extensive discovery-which she had forgone when the
post-marital agreement was in negotiation-to determine whether the financial
and property disclosures and valuations in the schedules to the post-marital
agreement were "truthful or fraudulent." The court, however, declined
to compel any discovery concerning the assets and liabilities identified on
the schedules, limiting discovery-at this stage of the proceeding-to the
circumstances surrounding the entry into the agreement. *fn3 The court
observed that: "If it turns out that the circumstances surrounding the entry
into the agreement are such that it appears that Ms. Burkle was taken
advantage of, then it may very well be that she is entitled to further
discovery." |
| [26] |
A ten-day trial ensued, at which Ms. Burkle raised two principal issues: (1)
whether she was so depressed and emotionally dependent upon Mr. Burkle that
she did not sign the agreement of her own free will, and (2) whether Mr.
Burkle concealed assets or significant financial information from Ms. Burkle.
The principal component involved in the second issue was Ms. Burkle's
complaint that the schedules to the agreement did not mention two mergers Mr.
Burkle was negotiating during the period between June 1997 and November 1997,
which transformed his two major business assets from privately held regional
supermarket chains to publicly merged national supermarket chains. These
mergers were:
1) A merger between Smith's (holdings in which Mr. Burkle claimed as separate
property) and Fred Meyer, which was announced publicly in May 1997 and
was consummated on September 9, 1997, almost two months before Ms. Burkle
signed the agreement; and
2) A later, second merger between Food-4-Less/Ralphs (a community property
holding) and Fred Meyer/Hughes, which was announced publicly on November 6,
1997, the day after Ms. Burkle signed the post-marital agreement (and two
weeks before Mr. Burkle signed it), and which was consummated four months
later, on March 10, 1998. |
| [27] | Ms. Burkle also asserted that, when the second merger closed in March 1998,
Mr. Burkle obtained valuable benefits (though the community's interest in
various "Yucaipa" companies) that had not been disclosed to Ms. Burkle before
she signed the agreement. These benefits were 75% of a $20 million
management contract termination fee, and 75% of $14 million in Fred Meyer
shares, received in return for surrender of Yucaipa warrants. |
| [28] | Both of the Burkles testified at length at the hearing, as did Karton (Mr.
Burkle's lawyer) and several other witnesses, and more than 70 exhibits were
offered into evidence.*fn4 The trial court's ultimate findings were that Ms.
Burkle signed the agreement "freely and voluntarily, and free from any
emotional influence that interfered with an exercise of her own free will,"
and that Mr. Burkle did not conceal assets or significant financial
information from Ms. Burkle. We summarize post, in two categories roughly
corresponding to the court's two ultimate conclusions and in a third general
category, various of the court's findings, all of which are supported by
substantial evidence in the record. |
| [29] |
A. The undue influence issue. |
| [30] | With respect to its conclusion that Ms. Burkle signed the agreement freely and
voluntarily, the trial court found, inter alia:
. In June 1997, Mr. Burkle transferred $100,000 into a bank account in Ms.
Burkle's name so she would feel no financial pressure, and Ms. Burkle
testified that she felt no financial pressure during the period culminating in
the execution of the agreement.
. In a conversation in which Mr. Burkle first made reference to a sum Ms.
Burkle might receive under a post-marital agreement, Ms. Burkle told Mr.
Burkle she did not feel comfortable discussing financial issues with him
directly. Thereafter, the parties did not discuss between themselves the
substantive provisions of the proposed post-marital agreement.
. Both parties genuinely wanted to reconcile with each other.
. Ms. Burkle's written and oral statements evidenced that she was in full
control of her faculties and emotions in connection with the negotiation of
and her entry into the agreement.
. Mr. Burkle did not coerce or threaten Ms. Burkle in any way, "including
physically, emotionally, or economically, to get her to sign the Agreement,"
and no persuasive evidence supported a conclusion she entered into the
agreement as a result of a depressed mental condition.
. Mr. Burkle made all relevant financial information available to Ms. Burkle's
attorneys and accountants for their inspection and review, and Ms. Burkle was
free at all times to have her representatives review and investigate that
information. Her decisions regarding the scope and extent of investigations,
including her decision to limit the scope, were freely made, with the advice
of her attorneys, and not as the result of any pressure applied by Mr. Burkle.
. Ms. Burkle exercised her own judgment, with the advice of skilled attorneys,
to conclude that the agreement was satisfactory to her.
. Ms. Burkle, "did, in fact, enter into the Agreement freely, willingly and
voluntarily, and free of any fraud, duress, medical condition or undue
influence." |
| [31] | |
| [32] | B. The concealment issue. |
| [33] | With respect to the claim that Mr. Burkle concealed assets and significant
financial information from Ms. Burkle, the trial court further found, inter
alia:
. On August 22, 1997, Karton (Mr. Burkle's lawyer) sent the initial draft of
the proposed agreement to Harlan, including schedules A and C setting forth
Mr. Burkle's view of the parties' community and Mr. Burkle's separate
property. In Karton's letter forwarding the draft, he advised Harlan that:
"With regard to the financial information, it appears more sensible to provide
you with access and information as you request. When you are ready to
proceed in that regard, let me know, and we will arrange a meeting at Ron's
office, together with personnel to assist you in reviewing the documentation."
. Karton's offer to make all information available to Ms. Burkle's
representatives remained open until the agreement was executed.
. On September 6, 1997, the Burkles and their respective counsel met for a
substantial portion of the day to discuss the initial draft. Two days
later, Harlan advised Karton that Ms. Burkle was prepared to accept the basic
terms of the proposed agreement. Negotiations continued, however, until late
October. On October 27, 1997, at Harlan's request, Karton sent him four
execution-ready copies of the agreement, and Ms. Burkle subsequently met for
two hours with Harlan and two other of her attorneys to discuss the agreement.
. Mr. Burkle fulfilled his fiduciary duties to Ms. Burkle, "including his duty
to make a true and full disclosure of community assets," and he "did disclose
in good faith his sincerely held and reasonable estimates of the value and
characterization of the community property and his separate property."
. The merger between Smith's and Fred Meyer (the first merger, consummated on
September 9, 1997 and involving property Mr. Burkle claimed as separate) was
known to Ms. Burkle before she entered into the agreement.
. At the meeting of the parties and counsel on September 6, 1997, Mr. Burkle
discussed with Ms. Burkle and Harlan the possibility of a merger between
Food-4-Less/Ralphs and Fred Meyer/Hughes (the second merger). And, Harlan
subsequently referred to a possible merger in his September 16, 1997
memorandum to Karton:
"[I]t seems to me from a fairness point of view that if there is a great
increase in the value of the community property assets, that Jan should share
in the appreciation in a defined amount.... [¶] I would propose that
if for example, Ralphs was to merge with Hughes and go public and the value
skyrockets to several hundred millions, that Jan should share in this
appreciation. I will let you and your client determine what is a fair and
equitable defined, ascertainable amount." *fn5 |
| [34] | |
| [35] | . "[M]any of the issues raised by [Ms. Burkle] and her counsel at time of
trial regarding purported inadequacies in disclosure could or should readily
have been discovered and addressed prior to the parties' entry into the
Agreement in 1997 if [Ms. Burkle] and her counsel had reviewed the information
which [Mr. Burkle] made available to them, including, but not limited to,
information regarding the Yucaipa warrants and the management agreement
cancellation fee."
. The overall value of the assets on the community property schedule to the
post-marital agreement did not materially change between June 6, 1997 (the
agreed valuation date) and November 22, 1997 (the date of the agreement). |
| [36] | |
| [37] | C. Other pertinent findings. |
| [38] | The trial court made several other pertinent findings and conclusions,
including these:
. Ms. Burkle was represented by a host of attorneys, including three certified
family law specialists, throughout the process that culminated with the
execution of the agreement. She also engaged a pre-eminent forensic
accounting firm, and hired a private investigative firm to conduct an asset
search on her behalf.*fn6 The investigative firm provided a three-volume
report to Ms. Burkle's attorneys. Ms. Burkle asserted the attorney-client
and work product privileges as to the advice and information provided by her
attorneys, accountants and investigators.*fn7 |
| [39] | |
| [40] | . Under the post-marital agreement, Ms. Burkle "in fact obtained the advantage
she was bargaining for of financial security;" and no presumption of undue
influence arose by virtue of the parties' entry into the agreement.
. "Even if a presumption of undue influence had arisen ... the credible
evidence at trial established overwhelmingly that any such presumption would
have been fully and completely rebutted."
. Ms. Burkle accepted the benefits she received under the agreement for more
than five years before raising claims relating to the second merger. "The
Court finds that such a delay in raising that issue was unreasonable, and
that, by her conduct, [Ms. Burkle] ratified the Agreement and is estopped to
deny the validity and enforceability of the Agreement at this late juncture."
. "The doctrine of laches bars [Ms. Burkle] from contesting the validity and
enforceability of the Agreement on the basis of the circumstances
surrounding its negotiation and execution, its performance, and the long delay
in raising challenge to the Agreement." |
| [41] |
After the trial court issued its tentative decision, Ms. Burkle timely
requested a statement of decision. She filed objections to the proposed
statement of decision; various revisions were made; and the objections were
overruled. A final statement of decision was filed on December 9, 2004,
together with an order finding the agreement valid and enforceable and
certifying the order for immediate appellate review. This appeal followed. |
| [42] |
DISCUSSION |
| [43] | Ms. Burkle's challenge to the trial court's decision is premised upon several
mistaken legal contentions, which we address in succeeding sections of this
opinion. |
| [44] | First, Ms. Burkle ignores the substantial evidence rule, reciting the facts as
she thinks they should have been found rather than as the trial court found
them. The substantial evidence rule does not apply, she contends, because
the court misallocated the burden of proof, an error she claims is "reversible
error per se ...." We conclude in part I, post, that the court properly
applied the burden of proof, and that no presumption of undue influence
applied under the circumstances of this case. We further conclude in part
II, post, that, even if a presumption of undue influence arose, the evidence
revealed it was thoroughly rebutted, and no legal basis exists for
reversing the court's order. |
| [45] | Second, we reject in part III, post, Ms. Burkle's claim that, because Mr.
Burkle did not provide her with written information about the mergers in
progress during the negotiation of the post-marital agreement, the agreement
was procured "through actual fraudulent misrepresentation and concealment" as
a matter of law. |
| [46] | Third, Ms. Burkle erroneously asserts the agreement must be set aside for
failure to comply with Family Code sections 2100 et seq., which require
parties to a dissolution proceeding to serve on each other financial
disclosure declarations before or at the time of an agreement resolving
property or support issues. As we explain in part IV, post, those sections
do not apply to a post-marital agreement that was not executed in
contemplation of the imminent dissolution of the marriage. |
| [47] | Fourth, we reject Ms. Burkle's claim that she properly rescinded the agreement
on January 7, 2004 for failure of consideration, based on Mr. Burkle's
allegedly defective tender of payment under the agreement. We conclude in
part V, post, that Ms. Burkle unequivocally repudiated the agreement in
her petition for dissolution and her verified responses to interrogatories,
excusing any further performance by Mr. Burkle pending a judicial
determination of the validity of the agreement. |
| [48] | Finally, as a further ground supporting the trial court's order, we conclude
in part VI, post, that the doctrines of ratification and estoppel preclude Ms.
Burkle's challenge to the validity of the agreement. |
| [49] |
I. No presumption of undue influence arose from the execution of the Burkles'
post-marital agreement, and the trial court therefore did not err in assigning
the burden of proof to Ms. Burkle. |
| [50] | We begin with a brief discussion of several principles that generally apply to
the analysis of interspousal transactions. |
| [51] | First, the fiduciary relationship between husband and wife is expressly
described in Family Code section 721, particularly as it relates to
transactions between themselves. The spouses occupy a confidential
relationship with each other, and are subject to the general rules governing
fiduciary relationships:
"This confidential relationship imposes a duty of the highest good faith and
fair dealing on each spouse, and neither shall take any unfair advantage of
the other. This confidential relationship is a fiduciary relationship
subject to the same rights and duties of nonmarital business partners...." (
Fam.Code, § 721, subd. (b).) |
| [52] |
[1] Second, "whenever [spouses] enter into an agreement in which one party
gains an advantage, the advantaged party bears the burden of demonstrating
that the agreement was not obtained through undue influence...." (In re
Marriage of Bonds (2000) 24 Cal.4th 1, 27, 99 Cal.Rptr.2d 252, 5 P.3d 815 (
Bonds ); In re Marriage of Haines (1995) 33 Cal.App.4th 277, 293, 39
Cal.Rptr.2d 673 (Haines ).) *fn8 |
| [53] |
From these two settled principles, Ms. Burkle concludes that her
post-marital agreement was presumptively obtained through undue influence, and
that Mr. Burkle had the burden of demonstrating otherwise. Ms. Burkle
contends that "even a cursory reading" of the agreement shows that Mr. Burkle
"obtained many advantages over Jan by virtue of the post-marital agreement."
According to Ms. Burkle, if the spouse relying on a marital agreement
obtained any advantage from it, fair or unfair, the presumption of undue
influence arises, and any advantage obtained by the spouse challenging the
agreement is "completely irrelevant." We do not agree with Ms. Burkle's
analysis, which is inconsistent with the express language of Family Code
section 721 and with the applicable case law. |
| [54] |
A. The meaning of "advantage" in a marital transaction. |
| [55] | [2] It is settled that the predicate for applying a presumption of undue
influence in an interspousal transaction is that one spouse has obtained an
advantage over the other in the transaction. (Haines, supra, 33 Cal.App.4th
at p. 297, 39 Cal.Rptr.2d 673; see Bonds, supra, 24 Cal.4th at p. 27, 99
Cal.Rptr.2d 252, 5 P.3d 815.) The presumption of undue influence is
regularly applied in marital transactions in which one spouse has deeded
property to the other, as in Haines. In such cases, it is evident one spouse
has obtained an advantage-the deeded property-from the other. In other more
comprehensive marital transactions involving the division of community assets,
the nature of the "advantage" required to raise a presumption of undue
influence has not been much discussed in the cases. However, the language of
Family Code section 721 is clear, prohibiting either spouse from taking "any
unfair advantage of the other." (Fam.Code, § 721, subd. (b).)
Section 721, together with our analysis of the case authorities, leads us to
conclude that the "advantage" which raises a presumption of undue influence in
a marital transaction involving a contractual exchange between spouses must
necessarily be an unfair advantage. |
| [56] | As long ago as 1894, the Supreme Court stated that:
"The moment it appears ... that 'an unfair advantage' has been obtained, the
presumption that it was procured by undue influence arises out of the
existence of the confidential relation of husband and wife...." (Dimond v.
Sanderson (1894) 103 Cal. 97, 102, 37 P. 189 (Dimond ).) |
| [57] | Almost a century later, the principle of unfair advantage was codified by the
predecessor to Family Code section 721 (former Civil Code section 5103), which
expressly defines the fiduciary duties of spouses in transactions with each
other. The existence of unfair advantage-or lack of consideration-as a
predicate to the presumption of undue influence in a marital transaction has
been frequently suggested in precedents over the years, both before and after
the enactment of section 721 and its predecessor. Thus:. In Estate of Cover
(1922) 188 Cal. 133, 144, 204 P. 583 (Cover ), the Supreme Court said that the
"mere existence of the marriage relation alone will not, in and of itself,
suffice to initiate and support the presumption of undue influence where the
transaction between husband and wife is prima facie, or, from all of the
circumstances thereof, shown to be fair and free from any material advantage
to the husband from and over the wife."
. In In re Marriage of Baltins (1989) 212 Cal.App.3d 66, 88, 260
Cal.Rptr. 403, the court observed: "The marriage relationship alone
will not support a presumption of undue influence by one spouse over the other
where the transaction between them is shown to be fair."
. In Haines, supra, 33 Cal.App.4th 277, 39 Cal.Rptr.2d 673, the court
expressly stated that the presumption of undue influence arises under Family
Code section 721 "[w]here one spouse has taken advantage of another" in the
transaction. (Id. at p. 301, 39 Cal.Rptr.2d 673.) The word "advantage," in
this context, plainly does not mean merely that a gain or benefit has been
obtained. Taking "advantage of another" necessarily connotes an unfair
advantage, not merely a gain or benefit obtained in a mutual exchange.
. In re Marriage of Delaney (2003) 111 Cal.App.4th 991, 996, 4 Cal.Rptr.3d 378
(Delaney ) stated that "when any interspousal transaction advantages one
spouse to the disadvantage of the other, the presumption arises that such
transaction was the result of undue influence." Again, a mere benefit is not
enough; the advantage must operate "to the disadvantage" of the other spouse.
. In In re Marriage of Saslow (1985) 40 Cal.3d 848, 221 Cal.Rptr. 546, 710
P.2d 346, the Supreme Court, while it did not discuss the presumption issue,
likewise emphasized the necessity for a showing of unfairness: "To support a
finding of undue influence, '[the] evidence, in addition to a showing of
marriage relationship, must also show such unfairness of the transaction as
will tend to establish that the wrongful spouse made use of the confidence
reposed for the purpose of gaining an unreasonable advantage over the mate.' "
(Id. at pp. 863-864, 221 Cal.Rptr. 546, 710 P.2d 346, quoting Snyder v.
Snyder (1951) 102 Cal.App.2d 489, 492, 227 P.2d 847.)
. Finally, numerous cases apply the presumption of undue influence when the
marital transaction is one in which one spouse deeds his or her interest in
community property to the other spouse, for no consideration or for clearly
inadequate consideration. (E.g., Weil v. Weil (1951) 37 Cal.2d 770, 787-789,
236 P.2d 159 [husband who secures a property advantage from his wife has the
burden to show the absence of undue influence; wife's deed to husband was
voluntary where the wife was aware that the spouses' interests were in
conflict and she had ample opportunity to obtain independent advice].) Cases
such as Weil and Haines, involving property transfers without consideration,
necessarily raise a presumption of undue influence, because one spouse obtains
a benefit at the expense of the other, who receives nothing in return. The
advantage obtained in these cases, too, may be reasonably characterized as a
species of unfair advantage. |
| [58] |
In short, both Family Code section 721 and case precedents support the
conclusion that in a contractual exchange between spouses, a presumption of
undue influence arises only if one of the spouses has obtained an unfair
advantage over the other. The Supreme Court's language in Bonds-that the
advantaged spouse bears the burden of demonstrating that the agreement was not
obtained through undue influence-is in no way inconsistent with this
conclusion. Bonds involved a premarital agreement and, in its discussion
contrasting premarital agreements with marital settlement agreements,
expressly posits a transaction which "advantages one spouse" (Bonds, supra, 24
Cal.4th at p. 28, 99 Cal.Rptr.2d 252, 5 P.3d 815)-not a transaction in
which both spouses obtain advantages. Bonds had no occasion to elucidate the
meaning of "advantage" in a contractual exchange between spouses where both
spouses obtain different advantages from the agreement. We discern no
incongruity between Bonds and our conclusion that a spouse is presumed to have
induced a transaction through undue influence only if he or she, in the words
of Family Code section 721, has obtained an "unfair advantage" from the
transaction. |
| [59] | Ms. Burkle insists that Bradner v. Vasquez (1954) 43 Cal.2d 147, 272 P.2d 11 (
Bradner ) requires the conclusion that any advantage, fair or unfair, obtained
in a marital agreement is sufficient to generate a presumption that the
agreement was induced through undue influence. We disagree. In Bradner, the
Supreme Court did conclude that, in an action between a fiduciary and his
beneficiary, a statutory presumption of undue influence applies when the
fiduciary "gains, benefits, or profits" from the transaction, without regard
to whether the advantage gained is fair or unfair. (Id. at p. 152, 272 P.2d
11.) In Bradner, the Supreme Court construed the presumptions in Civil Code
section 2235 (now Probate Code section 16004). Section 2235 then provided
that all transactions between a trustee and his beneficiary, by which the
trustee obtains "any advantage" from his beneficiary, were presumed to be
entered into by the beneficiary " 'without sufficient consideration, and under
undue influence.' " *fn9 (Bradner, supra, 43 Cal.2d at p. 151, 272 P.2d 11,
quoting former Civ.Code, § 2235.) Bradner, which involved a
transaction between attorney and client, expressly rejected the proposition
that the advantage gained by the fiduciary "must be an unfair advantage before
the presumptions of [former Civil Code] section 2235 are properly in the case.
" (Id. at p. 151, 272 P.2d 11.) The court found "no language in this
section which imposes such an additional requirement." (Ibid.) It concluded
that where a fiduciary "gains, benefits, or profits" from a transaction with a
beneficiary, it may fairly be said that an advantage has been obtained.
Further: "To declare that the advantage obtained must be shown to be unfair,
unjust, or inequitable before the presumptions arise would result in the
imposition of a condition which is not required by section 2235." (Id. at p.
152, 272 P.2d 11.) Similarly, the Supreme Court in Rader v. Thrasher (1962)
57 Cal.2d 244, 18 Cal.Rptr. 736, 368 P.2d 360 (Rader )-which, like Bradner,
involved an attorney-client transaction-stated that proof of an advantage, not
an unfair advantage, was "sufficient to raise the presumption of insufficient
consideration under section 2235," and expressly disapproved "[a]ny language
in Dimond v. Sanderson [and two other cases] inconsistent with this Conclusion
...." *fn10 (Rader, supra, 57 Cal.2d at p. 252, 18 Cal.Rptr. 736, 368 P.2d
360.) |
| [60] |
In our view, neither Bradner nor Rader is controlling. Both construed a
different statute governing the trustee-beneficiary relationship (former
Civil Code section 2235), and that statute required a presumption of undue
influence if "any advantage" was obtained by the trustee from his beneficiary.
The fiduciary duties of spouses are now expressly controlled by Family Code
section 721, which prohibits a spouse from taking "any unfair advantage" of
the other. Moreover, while principles governing trustee-beneficiary
relationships are obviously similar to those governing marital relationships,
in that both are fiduciary in nature, the two relationships are not identical.
Dimond long ago identified a significant difference, namely that the
statutory requirements applicable to the one-way trustee-beneficiary
relationship do not necessarily apply to an interspousal transaction in which
fiduciary duties run in both directions. Indeed, Dimond expressly stated
that the marital relationship is not that of trustee and beneficiary:
"The relation of husband and wife is not that of trustee and beneficiary,
though it is a confidential relation, and transactions between them are to be
considered in the same light and controlled by the same general rules ...;
but whether any particular transaction between husband and wife creates a
trust, and, if so, which is the trustee and which the beneficiary, must depend
upon the facts of the particular transaction involved in the controversy." (
Dimond, supra, 103 Cal. at p. 101, 37 P. 189.) |
| [61] |
In sum, the precedents construing statutory requirements applicable to
transactions between trustees and their beneficiaries are not controlling in
interspousal transactions. Interspousal transactions are expressly governed
by Family Code section 721, which prohibits a spouse from taking "any unfair
advantage of the other," and treats the fiduciary duties of spouses like those
of business partners. The distinction between the two types of fiduciary
relationship-trustee-beneficiary on the one hand, and spouses or business
partners on the other-is entirely reasonable, because in the latter fiduciary
duties run in both directions. Indeed, just as it would be patently
irrational to presume undue influence in a contract between business partners,
it would likewise be unreasonable to presume undue influence in a contract
between spouses, unless one of the spouses has obtained an unfair advantage.
For these reasons, we conclude that a contract between spouses that "
advantages one spouse" (Bonds, supra, 24 Cal.4th at p. 28, 99 Cal.Rptr.2d 252,
5 P.3d 815), and therefore raises a presumption the transaction was induced by
undue influence, is a transaction in which one spouse obtains an unfair
advantage over the other. |
| [62] |
B. The Burkles' post-marital agreement did not give Mr. Burkle an unfair
advantage. |
| [63] | [3][4] Whether an interspousal transaction gives one spouse an unfair
advantage is a question for the trier of fact.*fn11 The trial court declined
to apply a presumption of undue influence to the Burkles' post-marital
agreement, finding nothing unfair about the transaction. The court instead
found the agreement provided mutual advantages -the converse of an
agreement which "advantages one spouse to the disadvantage of the other" (
Delaney, supra, 111 Cal.App.4th at p. 996, 4 Cal.Rptr.3d 378): |
| [64] |
"In light of each party's goals and desires, the Court finds that the
Agreement was fair and equitable, effectively compromising a multitude of
issues between the parties. At the time that the Agreement was entered into,
substantial good faith disputes existed as to the date of separation, the
valuation and characterization of marital and separate property, the use of a
tax-effected valuation basis for calculating values, and other factors. The
Agreement provided mutual advantages to both [Ms. Burkle] and [Mr. Burkle].
The Agreement provided [Ms. Burkle] with an assured and very substantial sum,
bearing interest at 5% per annum until paid, regardless of any decrease in the
overall size of the marital estate. It also provided [Ms. Burkle] with annual
payments of $1 million which were to be her sole and separate property. At
the same time, the Agreement provided [Mr. Burkle] with the ability to pursue
his high-risk business ventures."
Thus, the trial court found that the agreement provided mutual advantages to
both Ms. Burkle and Mr. Burkle; that Ms. Burkle "in fact obtained the
advantage she was bargaining for of financial security"; and that no
presumption of undue influence arose by virtue of the parties' entry into the
agreement. We can discern no flaw in the trial court's findings on this
point, which are further supported by the express terms of the agreement
itself, as well as by the fact that Ms. Burkle was advised by a number of
sophisticated lawyers when she executed the agreement.*fn12 |
| [65] |
Ms. Burkle cites In re Marriage of Lange (2002) 102 Cal.App.4th 360, 125
Cal.Rptr.2d 379 (Lange ) and Haines, supra, 33 Cal.App.4th 277, 39 Cal.Rptr.2d
673, asserting that the disadvantaged spouses in those cases also obtained "
some advantage," but the courts nonetheless concluded that a presumption of
undue influence applied. An examination of the cases belies Ms. Burkle's
assertion. In neither case did the trial court find that the transaction
involved advantages to both spouses. Indeed, both cases reflect express
conclusions, in Lange by the trial court and in Haines by the court of appeal,
that one spouse obtained an advantage over the other, giving rise to the
presumption of undue influence. While the courts in those cases did not use
the term "unfair" to describe the advantage obtained by one spouse over the
other, the essence of both Haines and Lange was that the advantage was unfair.
*fn13 Neither case involved circumstances even faintly comparable to
those giving rise to the Burkles' post-marital agreement. |
| [66] |
In this case, the trial court expressly found the parties obtained mutually
agreeable advantages. This is therefore not a case of unfair advantage,
where "one spouse has taken advantage of another in an interspousal
transaction...." *fn14 (Haines, supra, 33 Cal.App.4th at p. 301, 39
Cal.Rptr.2d 673.) A presumption of undue influence cannot logically be
applied in a case where benefits are obtained by both spouses, where the
spouses are represented by sophisticated counsel, and where the spouses
expressly acknowledge that neither has obtained an unfair advantage as a
result of the agreement. The trial court did not err in concluding that no
presumption of undue influence arose, and that Ms. Burkle therefore had the
burden of proving, by a preponderance of the evidence, that the post-marital
agreement was invalid. |
| [67] |
II. Even if a presumption of undue influence applied, the trial court's
conclusion must be affirmed because it is supported by substantial evidence. |
| [68] | [5] Even if we assume Mr. Burkle gained an advantage sufficient to invoke the
presumption of undue influence, and the trial court therefore misallocated the
burden of proof, we would nevertheless be required to affirm the trial court's
order. Contrary to Ms. Burkle's claim, misallocation of the burden of proof
is not "reversible error per se," does not vitiate the substantial evidence
rule and, in this case, would not require reversal of the judgment.*fn15 |
| [69] |
A. The trial court's decision must be affirmed if substantial
evidence supports the conclusion that the presumption of undue influence was
rebutted. |
| [70] | [6] The question "whether the spouse gaining an advantage has overcome the
presumption of undue influence is a question for the trier of fact, whose
decision will not be reversed on appeal if supported by substantial evidence."
(In re Marriage of Mathews (2005) 133 Cal.App.4th 624, 632, 35 Cal.Rptr.3d 1
(Mathews ); Weil v. Weil, supra, 37 Cal.2d at p. 788, 236 P.2d 159.) Mathews
is directly on point, as the trial court in that case improperly refused to
apply the presumption of undue influence. The judgment was nonetheless
affirmed because substantial evidence rebutted the presumption. |
| [71] | In Mathews, the wife had quitclaimed her interest in the couple's residence to
the husband, in order to obtain a more favorable interest rate on a mortgage.
Throughout the marriage, both parties believed the residence was community
property and, after separation, discovered title was in the husband's name
alone. The trial court declined to apply a presumption of undue influence,
and determined the wife entered into the transaction freely, voluntarily and
with a full understanding of the quitclaim deed. The court of appeal
concluded that the trial court "improperly refused to apply the section 721
presumption of undue influence" and that the husband had the burden of
overcoming the presumption of undue influence. (Mathews, supra, 133
Cal.App.4th at p. 630, 35 Cal.Rptr.3d 1.) However, the trial court had "
conclu[ded] that the quitclaim deed was the voluntary and deliberate act of
[the wife], taken with full knowledge of its legal effect, and [the husband]
did not unduly influence [the wife] to acquire title to the residence in his
name alone." (Id. at p. 632, 35 Cal.Rptr.3d 1.) Because the question
whether the presumption of undue influence was overcome is a question for the
trier of fact, and because substantial evidence supported the trial court's
conclusion, the court of appeal affirmed the judgment:
"Substantial evidence supports the conclusion that Husband rebutted the
presumption of undue influence over Wife's signing the quitclaim deed by a
preponderance of the evidence." *fn16 (Mathews, supra, 133 Cal.App.4th at p.
632, 35 Cal.Rptr.3d 1.) |
| [72] | |
| [73] | [7] Ms. Burkle urges us to disregard Mathews, and cites several cases which
find that an error in assigning the burden of proof was reversible error.
The cases do not assist her, because an error in allocating the burden of
proof must be prejudicial in order to constitute reversible error. In the
cases cited, the result may have been different had the proper party been
assigned the burden of proof.*fn17 The case is otherwise here, where the
trial court found the credible evidence "established overwhelmingly" that the
agreement was not procured by undue influence. Accordingly, if substantial
evidence supports the trial court's conclusion, we must affirm the order. |
| [74] |
B. In this case, the trial court's conclusion that any presumption of undue
influence was rebutted is supported by substantial evidence. |
| [75] | [8] When a presumption of undue influence applies to a transaction, the spouse
who was advantaged by the transaction must establish that the
disadvantaged spouse's action "was freely and voluntarily made, with full
knowledge of all the facts, and with a complete understanding of the effect of
" the transaction. (Delaney, supra, 111 Cal.App.4th at p. 1000, 4 Cal.Rptr.3d
378; see also Mathews, supra, 133 Cal.App.4th at p. 631, 35 Cal.Rptr.3d 1;
Haines, supra, 33 Cal.App.4th at p. 296, 39 Cal.Rptr.2d 673.) In this case,
the trial court expressly found that, even if a presumption of undue
influence had arisen, "the credible evidence at trial established
overwhelmingly that any such presumption would have been fully and completely
rebutted." Substantial evidence supports that conclusion. The trial court
heard testimony from both of the Burkles and made express findings on each of
the three factors, delineated in Delaney and other cases, that rebut the
presumption of undue influence: the transaction was entered freely and
voluntarily, with full knowledge of the facts, and with a complete
understanding of its legal effect. Thus:
. The court found that Ms. Burkle "did, in fact, enter into the Agreement
freely, willingly and voluntarily, and free of any fraud, duress, medical
condition or undue influence." Numerous subsidiary findings supported this
conclusion. (See page 190, ante.)
. As to Ms. Burkle's "full knowledge of all the facts"-a point addressed
further in the succeeding section-the trial court found that Mr. Burkle
fulfilled "his duty to make a true and full disclosure of community assets,"
and he "did disclose in good faith his sincerely held and reasonable estimates
of the value and characterization of the community property and his separate
property." It found that Mr. Burkle made all relevant financial information
available to Ms. Burkle's attorneys and accountants for their inspection and
review, and Ms. Burkle was free at all times to have her representatives
review and investigate that information. It found that Ms. Burkle knew about
the first merger, between Smith's and Fred Meyer, before she signed the
agreement. It found that the possibility of a second merger between
Food-4-Less/Ralphs and Fred Meyer/Hughes was discussed at a meeting among the
parties and their counsel. It further found that in later correspondence Ms.
Burkle's attorney referred to the possibility of the merger and proposed that
Ms. Burkle should share in future appreciation from such a merger. In the
agreement itself, Ms. Burkle acknowledged she was aware that the assets on
Schedules A and C "may, and probably will, increase dramatically in value in
the future...."
. As to Ms. Burkle's understanding of the effect of the agreement, the
recitals in the agreement, her representation by a number of attorneys,
including family law specialists, and her own and her attorney's
certifications leave no doubt that she understood the legal effect of the
agreement. |
| [76] |
In sum, substantial evidence supports the trial court's conclusion that
any presumption of undue influence was rebutted. (Mathews, supra, 133
Cal.App.4th at p. 632, 35 Cal.Rptr.3d 1.) Indeed, Ms. Burkle does not
address the trial court's factual findings, but instead takes the position
that the substantial evidence rule does not apply, and that she is at liberty
to state the case as she chooses and without reference to the findings. As
we have seen, that position is mistaken. As in Mathews, this record
furnishes no basis for overturning the trial court's decision that Ms. Burkle
"did, in fact, enter into the Agreement ... free of any ... undue influence."
*fn18 |
| [77] |
III. Ms. Burkle's contention that the agreement must be set aside
because Mr. Burkle procured it through "actual fraudulent misrepresentation
and concealment" is entirely without merit. |
| [78] | [9][10] Of course, spouses entering into agreements relating to marital assets
may not misrepresent or conceal facts materially affecting the value of the
marital assets. (Boeseke v. Boeseke (1974) 10 Cal.3d 844, 850, 112 Cal.Rptr.
401, 519 P.2d 161 (Boeseke ) [spouse represented by independent counsel who
has accepted a proposed settlement and has foregone a suggested investigation
"may not later avoid the agreement unless there has been a misrepresentation
or concealment of material facts"].) Ms. Burkle contends she may avoid the
Burkles' post-marital agreement because Mr. Burkle procured it through "actual
fraudulent misrepresentation and concealment" as a matter of law. The
contention again is without merit. |
| [79] | Ms. Burkle's argument is premised on the fact that two mergers were in various
stages of negotiation between June 1997, when Ms. Burkle filed her petition
for dissolution, and November 21, 1997, when Mr. Burkle signed the agreement,
and "[n]ot one word of either of these mergers is referenced in the
[post-marital agreement]." Further, the footnotes to the schedules are
alleged to "affirmatively dramatically misrepresent these assets [marital
assets affected by the mergers]." As best we can discern the argument, these
alleged concealments and misrepresentations are claimed to constitute both
constructive fraud and actual fraud, as a matter of law, because Mr. Burkle
had a fiduciary duty "to furnish in writing to Jan, without demand,
sufficient information concerning the merger transaction so as to afford Jan
the opportunity to properly exercise her rights and duties as a partner in the
assets." *fn19 Neither the law nor the facts support this claim. |
| [80] |
[11] The applicable law is clear. The pertinent rule is that a spouse who
foregoes investigation and accepts a proposed settlement "may not later avoid
the agreement unless there has been a misrepresentation or concealment of
material facts." (Boeseke, supra, 10 Cal.3d at p. 850, 112 Cal.Rptr. 401, 519
P.2d 161.) In this case, the Burkles agreed to value the marital estate as
of June 6, 1997; Ms. Burkle's representatives were offered full access at Mr.
Burkle's office to all financial information throughout the negotiations; Ms.
Burkle knew about the first merger, which was consummated before she signed
the agreement, and she knew Mr. Burkle was working on the second merger; Mr.
Burkle testified that documentation on the second merger was available for
review by Ms. Burkle's representatives in Mr. Burkle's office; and Ms.
Burkle's representatives did not review the information. Under these
circumstances, only an actual concealment or misrepresentation would allow Ms.
Burkle to avoid her agreement. |
| [81] | Boeseke is instructive. In that case, the spouses executed a property
settlement agreement which was subsequently adopted in a divorce decree. In
negotiating the property settlement, the husband, who had managed the
community property, gave the wife and her attorney his verbal valuation of the
community property. However, he insisted on a "no representation" provision
stating that neither party made any representations concerning property values
and that each relied on his or her own investigation. Against her attorney's
advice, the wife elected not to investigate and signed the agreement proposed
by the husband. After the husband died leaving a substantial estate, the
wife sued to rescind the agreement. The trial court concluded that the
husband failed to disclose the facts relating to the value, nature and extent
of the community assets, and that this nondisclosure constituted concealment
of a material fact, breach of fiduciary duty, and fraud. (Boeseke, supra, 10
Cal.3d at p. 848, 112 Cal.Rptr. 401, 519 P.2d 161.) The Supreme Court,
however, held otherwise. The court observed it was true the husband did
not disclose all facts in his possession relating to the value, nature and
extent of the community property, but the wife and her counsel were fully
advised of the property descriptions; were aware some of it was of
substantial value; but did not request further facts relating to the value,
the nature or the extent of the marital assets. Instead, the wife chose to
accept her husband's offer of settlement "even after being advised by counsel
that she should investigate." (Id. at p. 849, 112 Cal.Rptr. 401, 519 P.2d
161.) The trial court's finding of fraud predicated on lack of disclosure
therefore failed. (Ibid.) The Supreme Court observed:
"[W]hen a spouse, represented by independent counsel, determines to forego a
suggested investigation and to accept a proposed settlement, that spouse may
not later avoid the agreement unless there has been a misrepresentation or
concealment of material facts. Under such circumstances, the spouse
proposing the agreement is under no duty to compel the other to investigate,
and the accepting spouse's decision, though ill advised, is binding." *fn20
(Boeseke, supra, 10 Cal.3d at p. 850, 112 Cal.Rptr. 401, 519 P.2d 161, fn.
omitted.) |
| [82] | |
| [83] | Ms. Burkle insists that Vai v. Bank of America is controlling, and supports
the proposition that Mr. Burkle violated his fiduciary duty to Ms. Burkle by
failing affirmatively to advise her, in writing, that he was "in the final
stages of negotiation and completion of a second major merger." *fn21 Vai
does not assist Ms. Burkle, and indeed was expressly distinguished by
the Supreme Court in Boeseke. In Vai, the wife sued the executor of her
deceased husband's estate to rescind a property settlement agreement on the
ground of actual and constructive fraud. (Vai, supra, 56 Cal.2d at pp. 333,
335, 15 Cal.Rptr. 71, 364 P.2d 247.) The trial court found the husband was
not a fiduciary, the parties dealt at arm's length, and there was no issue of
constructive fraud and no proof of actual fraud. (Id. at p. 335, 15 Cal.Rptr.
71, 364 P.2d 247.) The Supreme Court reversed the judgment, holding that,
under the facts found by the trial court, the husband was a fiduciary, and the
"failure of the husband ... to disclose fully and fairly material facts
relating to the value of community assets from which [he] gained an
advantage constitutes a concealment of material facts and a breach of this
fiduciary duty." (Id. at p. 342, 15 Cal.Rptr. 71, 364 P.2d 247.) The facts
found by the trial court included the husband's representations that the
adversary proceedings the wife had begun would be detrimental to his health;
that the wife need not pursue her legal remedies of discovery; and that he
would supply full and complete information concerning the property. (Id. at
p. 334, 15 Cal.Rptr. 71, 364 P.2d 247.) The husband then represented to the
wife that the book value of vineyard land was $200 per acre, but did not
inform her that, several weeks before the property settlement agreement, he
had executed a sale deposit receipt for the land at a price of $814 per acre.
*fn22 (Id. at p. 340, 15 Cal.Rptr. 71, 364 P.2d 247.) These "facts as
found by the trial court show[ed] ... constructive fraud as a matter of law."
(Id. at p. 342, 15 Cal.Rptr. 71, 364 P.2d 247.) |
| [84] |
The "facts as found by the trial court" in this case are light years from
those in Vai. As the Supreme Court explained in Boeseke, distinguishing Vai:
"Vai ... is distinguishable because the wife did investigate, and while the
husband made representations of fact and value relating to their ranch, he
failed to disclose he had accepted a deposit on the property for a price
greatly in excess of the value suggested by his representations.... [T]he
husband's failure to disclose that information constituted a concealment of a
material fact concerning the property. In contrast, [the wife in Boeseke ]
was made aware that the facts relating to value and income were neither fully
disclosed nor settled." *fn23 (Boeseke, supra, 10 Cal.3d at p. 850,
fn. 5, 112 Cal.Rptr. 401, 519 P.2d 161.) |
| [85] | |
| [86] | Neither Vai nor any other case suggests that, as a matter of law, Mr. Burkle
was required to provide Ms. Burkle with written details about a contemplated
merger-the prospect of which was known to and had been discussed previously
among the parties and counsel-in order to fulfill his fiduciary duty of full
and fair disclosure. |
| [87] | As for the facts, no evidence indicates actual concealment or
misrepresentation of information relating to the mergers. Again, Ms. Burkle
ignores the trial court's findings. As we have seen, the court concluded
that Mr. Burkle did not conceal assets or significant financial
information from Ms. Burkle. This ultimate conclusion was based on
substantial evidence reflected in numerous subsidiary factual findings, many
of which have already been enumerated. The court found that Mr. Burkle
fulfilled his fiduciary duties to Ms. Burkle, "including those in connection
with the negotiation of and entry into the Agreement." It found that the
selection of a fixed date for valuation of the assets was reasonable and
necessary, given the size of the marital estate, and that the agreed valuation
date-June 6, 1997-was reasonable and selected in good faith. It found that
the overall value of the assets on the community property schedule did not
materially change between June and November 1997. It found that Ms. Burkle
had "every opportunity to investigate any changes in value of any assets from
the chosen June 6, 1997 date to the date of execution of the Agreement." It
found she and her attorneys knew about the first merger-which involved shares
in Smith's which she agreed to characterize as Mr. Burkle's separate
property-well before the agreement was executed. *fn24 It found the parties
discussed the possibility of a second merger, and Ms. Burkle's counsel
proposed she should share in any resulting appreciation from such a merger, a
proposition that was rejected. It found that Mr. Burkle made all relevant
financial information available for review by Ms. Burkle's attorneys and
accountants. |
| [88] |
[12] Under these circumstances, there was no constructive or actual fraud.
If Ms. Burkle wanted further information on the particulars of a contemplated
transaction, she should have pursued the opportunity to review and investigate
information open to her throughout the negotiations. (See Boeseke, supra, 10
Cal.3d at p. 850, 112 Cal.Rptr. 401, 519 P.2d 161.) Certainly, it cannot be
said that Mr. Burkle either concealed or misrepresented any information about
either merger. The trial court's conclusion that Mr. Burkle did not conceal
significant financial information from Ms. Burkle was fully justified. *fn25 |
| [89] |
IV. Ms. Burkle's claim the agreement must be set aside for failure
to serve the sworn disclosure declarations required by Family Code sections
2100 et seq. is without merit. |
| [90] | [13][14] The Family Code requires the parties to a dissolution proceeding to
serve on each other a preliminary, sworn declaration, on forms prescribed by
the Judicial Council, identifying all assets and liabilities. *fn26 (
Fam.Code, § 2104, subds. (a) & (c).) Similarly, before the parties to
a dissolution proceeding enter into an agreement for the resolution of
property issues, or before any trial, each must serve on the other "a final
declaration of disclosure and a current income and expense declaration,
executed under penalty of perjury on a form prescribed by the Judicial Council
...." *fn27 (Fam.Code, § 2105, subd. (a).) These mandatory statutory
requirements cannot be waived, except in strict compliance with provisions of
the statute.*fn28 (In re Marriage of Fell (1997) 55 Cal.App.4th
1058, 1060, 1064-1066, 64 Cal.Rptr.2d 522 [affirming a judgment setting aside
an original judgment of dissolution and marital settlement agreement, based
upon an impermissible waiver of the mandatory exchange of disclosure
declarations at the time of dissolution].) |
| [91] |
Ms. Burkle contends that, because the parties did not exchange the sworn
preliminary and final disclosure declarations described in sections 2104 and
2105, their post-marital agreement is invalid and unenforceable as a matter of
law. The trial court rejected this contention, concluding that the Family
Code provisions in question were not applicable to the Burkles' agreement:
"Based on the location of those sections in Chapter 9 of Division 6 of the
Family Code, and considering the references therein to trials, trial dates and
the like, Family Code §§ 2100 et seq. only apply to agreements
entered into incident to a dissolution of marriage or legal separation action
that is proceeding to judgment. Unlike an agreement ... which contemplates
prompt entry of a judgment of marital dissolution ..., the Agreement clearly
was not entered into by the parties in connection with the contemplated ending
of their marriage. Rather, the Agreement was reached after the dissolution
proceeding had been placed in abeyance for the purpose of attempting to
continue the marriage and allowing the parties the opportunity to reconcile,
even though a reconciliation was not a condition of the Agreement. The
purposes and goals of the Agreement were consistent with the clear public
policy of the State of California favoring the continuation of marriages, and
not ending them." |
| [92] |
We agree with the trial court that Family Code section 2104 and 2105 were not
intended to and do not apply to a post-marital agreement that was not executed
in contemplation of the imminent dissolution of the marriage, and indeed that
was expressly intended "to promote increased understanding, harmony and trust"
and was made with the "intent to make a good faith effort to reconcile [the
parties'] differences...." The legislative findings and declarations in
section 2100 make clear that the statute applies to agreements that
contemplate a judgment dissolving the marriage, not agreements that
contemplate a reconciliation. The structure and language of other provisions
of the statute likewise make this intention clear. A few examples should
suffice.*fn29 |
| [93] |
First, section 2100 states the Legislature's findings and declarations. The
first policy declared by the Legislature is to marshal and preserve community
assets "that exist at the date of separation so as to avoid dissipation of the
community estate before distribution...." (Fam.Code, § 2100,
subd. (a)(1).) The second policy is to ensure fair and sufficient child and
spousal support awards, and the third is to achieve a division of community
assets as provided under California law "on the dissolution or nullity of
marriage or legal separation of the parties...." (Fam.Code, § 2100,
subds. (a)(2) & (3).) The Legislature further states that sound public
policy "favors the reduction of the adversarial nature of marital
dissolution and the attendant costs by fostering full disclosure and
cooperative discovery." (Fam.Code, § 2100, subd. (b).) From these
stated policies, it is apparent that the asset disclosures required by the
statute are attendant upon the separation of the parties and the imminent
dissolution of the marriage, whether after a trial or by agreement of the
parties. |
| [94] | Second, other provisions likewise make clear that the statute contemplates a
judgment of dissolution in connection with the agreement for resolution of
property issues to which the statute refers. Family Code section 2104, which
requires service of preliminary disclosure declarations, indicates in the
immediately succeeding sentence that the commission of perjury on the
preliminary declaration "may be grounds for setting aside the judgment...." (
Fam.Code, § 2104, subd. (a).) The same language is used in section
2105 with respect to perjury on the final declaration of disclosure. (
Fam.Code, § 2105, subd. (a).) Family Code section 2106 specifies that
"no judgment shall be entered with respect to the parties' property rights
without" the execution and service of the final declaration of disclosure and
current income and expense declaration.*fn30 In addition, section 2105
requires the service of a current income and expense declaration with the
disclosure declaration, a requirement which makes no sense in the context of a
post-marital agreement in which the parties do not intend an imminent
dissolution of the marriage. (Fam.Code, § 2105, subd. (a).) |
| [95] |
In short, the Legislature's own words show it intended the asset disclosure
requirements of section 2100 et seq. to apply to property agreements executed
in connection with or in contemplation of a judgment of dissolution of the
marriage. Nothing in the statutory language suggests any intent to extend
the asset disclosure requirements to post-marital agreements that do not
contemplate imminent dissolution, and instead contemplate an effort to
reconcile. |
| [96] | Ms. Burkle insists that Family Code section 2105, subdivision (a), is
applicable "[b]y its terms ... whenever 'the parties enter into an agreement
for the resolution of property or support issues.' " If so, we are
inclined to think the Legislature would have stated exactly that, and of
course it did not. Ms. Burkle ignores the remainder of the sentence, not to
mention the rest of the subdivision and the other provisions of the statute.
In any event, we do not determine the meaning of a statute-assuming it is
ambiguous-"from a single word or sentence. Instead, we construe the words
and sentences in context and in the light of the statutory scheme." (
Department of Industrial Relations v. Lee (1999) 73 Cal.App.4th 763, 767, 86
Cal.Rptr.2d 710.) The statutory scheme leaves no doubt as to the statutory
meaning. *fn31 |
| [97] |
Finally, Ms. Burkle protests the parties did not agree to reconcile; the
agreement constitutes a "pre-packaged divorce"; and a dissolution proceeding
was pending when the agreement was executed. None of these arguments is
sufficient to induce us to apply a statute governing dissolution proceedings
to circumstances in which the parties are not in fact using the judicial
system to seek dissolution of their marriage. It may be a preferable rule,
where a petition for dissolution has been filed, to require spouses who wish
simultaneously to attempt reconciliation and resolve their financial disputes
to file sworn disclosure declarations, unless the dissolution proceeding is
dismissed. That, however, is a matter for the Legislature, and not for the
courts, to undertake. |
| [98] | [15] The remaining question involves the standard under which a trial court
may find that a dissolution proceeding was "placed in abeyance" and that an
agreement resolving property issues was not executed in contemplation of
imminent dissolution of the marriage. Certainly parties to a dissolution
proceeding cannot be permitted to avoid section 2100's mandatory sworn
disclosure declarations merely by asserting an intention to attempt
reconciliation, executing an agreement without statutory disclosures, and then
resuming the dissolution proceedings. We are confident, however, that trial
courts are well-equipped to determine whether a dissolution proceeding was in
abeyance or whether one or both spouses were improperly attempting to avoid
mandatory and non-waivable disclosure requirements. The factors the trial
court must assess include, but are not limited to, the bona fides of the
spouses' intention to attempt reconciliation; their intention to hold the
dissolution proceeding in abeyance; the length of time during which the
spouses reside together, after initiating the dissolution proceeding, in
connection with their attempts to reconcile; the duration of any actual
reconciliation; and the length of time during which no activity has occurred
in the dissolution proceeding.*fn32 |
| [99] |
[16] In this case, the trial court properly concluded the dissolution
proceeding was in abeyance, and the agreement "clearly was not entered into by
the parties in connection with the contemplated ending of their marriage."
The parties expressly stated their intent to make a good faith effort to
reconcile their differences. They were not separated when they executed the
agreement, explicitly acknowledging in the agreement that they were "currently
residing together at the Green Acre property." They continued to reside
together for at least four years after executing the post-marital agreement.
After the dissolution petition was filed on June 10, 1997, followed by a
confidentiality stipulation on August 26, 1997, no activity occurred in the
proceeding for almost six years.*fn33 Under these circumstances, no
conclusion is possible except that the dissolution proceeding was "placed in
abeyance for the purpose of attempting to continue the marriage...."
Accordingly, because the post-marital agreement was not executed in connection
with the imminent dissolution of the marriage, Family Code sections 2104 and
2105 do not apply.*fn34 |
| [100] |
V. Ms. Burkle's claim that she properly rescinded the agreement for
non-performance and failure of consideration is without merit. |
| [101] | [17] Ms. Burkle served her petition for dissolution on Mr. Burkle on June 26,
2003. Under the post-marital agreement, Mr. Burkle was required to make the
first $5 million payment to Ms. Burkle within 90 days. In her petition,
however, Ms. Burkle stated the agreement was "void and unenforceable." Her
verified interrogatory answers served August 5, 2003, likewise asserted the
agreement was void and unenforceable. Subsequently, by letter from counsel
dated September 23, 2003, Mr. Burkle tendered the sum of $3,584,601 on the
first $5 million payment due, crediting himself with claimed overpayments of
$1,415,399 in respect of his obligation to pay Ms. Burkle one million dollars
per year while they continued to live together. Counsel's letter requested
immediate written notice if Ms. Burkle's lawyers disputed the calculation or
the validity of the tender. Her lawyers responded that the agreement was
void and unenforceable; they disagreed with the accounting in Karton's
letter, so that even if the agreement were enforceable, the letter was not a
valid tender; and "[w]hat your client should do is make a payment to Jan
without prejudice to the rights or claims of any party...." |
| [102] | Ms. Burkle argues, as she did to the trial court, that Mr. Burkle's tender was
defective and "amounted to a failure of consideration and an anticipatory
breach chargeable to Ron, giving Jan an election to rescind," which she later
purported to do by letter of January 7, 2004.*fn35 The trial court concluded
that Ms. Burkle had unequivocally repudiated the agreement in her petition for
dissolution and her verified responses to interrogatories, excusing any
further performance by Mr. Burkle and rendering irrelevant any defect in the
payment he tendered. We agree with the trial court. |
| [103] |
Ms. Burkle contends she did not repudiate the contract, because "[a] mere
declaration ... of an intention not to be bound will not of itself amount to a
breach, so as to create an effectual renunciation of the contract...." (
Atkinson v. District Bond Co. (1935) 5 Cal.App.2d 738, 743, 43 P.2d 867 (
Atkinson ).) Ms. Burkle's verified statements in her petition and
interrogatory answers, however, constituted more than a "mere declaration" of
intention not to be bound, and she omits reference to the remainder of the
principle for which Atkinson stands: "To justify the adverse party in
treating the renunciation as a breach, the refusal to perform must be of
the whole contract or of a covenant going to the whole consideration, and must
be distinct, unequivocal and absolute." (Ibid.) In Atkinson, a subsequent
letter disclaiming any liability under the contract "was tantamount to a
distinct, unequivocal and absolute refusal to perform, ... sufficient to
justify plaintiffs in ... acting thereon as though it were a wrongful
renunciation." (Id. at p. 744, 43 P.2d 867.) We discern no error in the
trial court's finding that Ms. Burkle unequivocally repudiated the contract in
her dissolution petition and in her discovery responses. |
| [104] | [18] Ms. Burkle's further contention that, even if she repudiated the
contract, Mr. Burkle's subsequent tender somehow "nullified" her repudiation
has no merit. "It is well settled that an unequivocal repudiation of the
contract by one party prior to material breach of the contract by the other
party excuses the other party from tendering performance of his concurrently
conditional obligations." *fn36 (Kossler v. Palm Springs Developments, Ltd.
(1980) 101 Cal.App.3d 88, 102, 161 Cal.Rptr. 423.) Moreover, Ms. Burkle
cites no legal support for the claim that an allegedly defective tender
somehow nullifies the other party's repudiation of a contract, and we are
aware of none. Indeed, Ms. Burkle's response to the defective tender
reiterated her position that the contract was void and unenforceable.
Consequently, Mr. Burkle's allegedly defective tender of less than $5 million
is, as the trial court stated, irrelevant. |
| [105] |
VI. Doctrines of ratification and estoppel likewise preclude Ms. Burkle's
claim that the post-marital agreement is void and unenforceable. |
| [106] | [19][20] In addition to its other conclusions, the trial court observed that
Ms. Burkle accepted the benefits she received under the agreement for more
than five years before asserting that it was unenforceable based on Mr.
Burkle's failure to inform her in writing of the contemplated
Food-4-Less/Ralphs merger with Fred Meyer/Hughes and the impact it would have
on the community estate. The court continued:
"The Court finds that such a delay in raising that issue was unreasonable, and
that, by her conduct, [Ms. Burkle] ratified the Agreement and is estopped to
deny the validity and enforceability of the Agreement at this late juncture.
[Ms. Burkle] waited over five years to complain about any aspect of the
Agreement, which is evidence that she felt the Agreement was fair, given the
obvious and notorious success of [Mr. Burkle's] post-Agreement ventures."
*fn37 |
| [107] | |
| [108] | In addition, the court found:
"By willingly accepting all of the substantial financial benefits to which she
was entitled under the Agreement for more than five years, including but not
limited to, accepting the annual payments due thereunder and causing [Mr.
Burkle] to provide her with the funds needed for her to purchase a house
for herself as provided for therein, [Ms. Burkle] has ratified the Agreement
and waived any right to seek to rescind it." |
| [109] | Again, we are compelled to agree with the court's analysis.*fn38 |
| [110] |
Ms. Burkle argues the doctrines of laches, ratification and estoppel have
no application to this case. First, she contends, the trial court's
determinations were based solely on her delay in asserting the invalidity of
the agreement, and delay is irrelevant when the invalidity of a contract is
asserted defensively. She maintains she asserted the invalidity of the
agreement, in effect, as a defense to Mr. Burkle's interposition of the
agreement in the dissolution action. She then relies on Cover, which states
the doctrine of laches does not bar a defense of invalidity of an agreement on
the ground of fraud, because one who has been defrauded "may abide his time,
and when enforcement is sought against him excuse himself from performance by
proof of the fraud." (Cover, supra, 188 Cal. at pp. 140-141, 204 P. 583; see
also Styne v. Stevens (2001) 26 Cal.4th 42, 51-52, 109 Cal.Rptr.2d 14, 26 P.3d
343 (Styne ) [one sued on a contract may urge defenses that render the
contract unenforceable, even if the same matters would be untimely if asserted
as the basis for affirmative relief].) The short answer to this contention
is that Ms. Burkle was not sued on the agreement and is not urging its
invalidity as a defense to an action against her, as in Cover and Styne. She
affirmatively asserted the invalidity of the agreement in support of her claim
for a division of community property. Moreover, even if she were challenging
the agreement defensively, the Family Code now expressly permits the defense
of laches in actions in which a spouse asserts a breach of fiduciary duty that
impairs community entitlements.*fn39 |
| [111] |
Further, Ms. Burkle's contention the trial court's determinations were "all
based solely on Jan's 'delay' in asserting the invalidity of the [agreement]"
is erroneous. The court's findings of ratification and estoppel were
expressly premised on her acceptance of the agreement's benefits-including $1
million each year as her separate property-over the course of the five-year
period. As Cover states, "[t]here might perhaps be much force in [the]
contention" that the defendant widow would be estopped from claiming the
invalidity of an agreement, under which she accepted benefits, if it were
shown that she had discovered the deceased's fraud before his death. (Cover,
supra, 188 Cal. at p. 146, 204 P. 583.) In Cover, the evidence revealed the
widow had no occasion to discover the fraud. In this case, it can
scarcely be claimed that Ms. Burkle, like the widow in Cover, accepted
and retained the benefits of the agreement "in continuing ignorance" (ibid.)
of the second merger and its effect on the community estate. Ms. Burkle knew
her husband was negotiating a second merger; a public announcement of the
merger was made two days after she signed the post-marital agreement; and it
strains credulity to suggest that she remained "in continuing ignorance"
thereafter, given, in the trial court's words, "the obvious and notorious
success of [Mr. Burkle's] post-Agreement ventures." In short, even if the
doctrine of laches did not apply, the doctrines of ratification and estoppel
surely do. (See Cover, supra, 188 Cal. at p. 146, 204 P. 583 [accepting and
retaining benefits of an agreement would operate as an estoppel if the person
to be estopped "acted with full knowledge of all the material facts and
circumstances and with full knowledge of her rights in the premises"]; Brown
v. Rouse (1894) 104 Cal. 672, 676, 38 P. 507 [essence of ratification is that
it is done with full knowledge of the party's rights; "ratification will be
strongly presumed against one who has accepted and had the beneficial use of
the property or money involved in the transaction"].) *fn40 |
| [112] |
Finally, Ms. Burkle argues that none of the doctrines of laches, ratification
or estoppel applies because Mr. Burkle was not prejudiced, as the amounts he
paid under the agreement were far less than Ms. Burkle would have been
entitled to receive in the absence of the agreement, as her share of the
marital accumulations from 1997 to 2003. Ms. Burkle misconceives the
applicable principle. As the Supreme Court stated in Conti v. Board of Civil
Service Commissioners (1969) 1 Cal.3d 351, 82 Cal.Rptr. 337, 461 P.2d 617, "
[t]he defense of laches requires unreasonable delay plus either acquiescence
in the act about which plaintiff complains or prejudice to the defendant
resulting from the delay." (Id. at p. 359, 82 Cal.Rptr. 337, 461 P.2d 617,
fns. omitted, emphasis added.) In this case, Ms. Burkle plainly acquiesced
in the terms of the agreement by accepting its benefits. Moreover, the
element of prejudice has no bearing on the issue of ratification.*fn41 |
| [113] |
Accordingly, the trial court properly found that the doctrines of
ratification and estoppel precluded Ms. Burkle from claiming the post-marital
agreement was unenforceable. |
| [114] |
DISPOSITION |
| [115] | The order is affirmed. Ronald W. Burkle is to recover his costs on appeal. |
| [116] | COOPER, P.J., and RUBIN, J., concur. |
| [117] | |
|
| |
| Opinion Footnotes | |
|
| |
| [118] | *fn1 This separate property consisted of stock and stock warrants in Smith's and Dominick's, held by various limited and general partnerships and limited liability corporations. A third schedule listed Ms. Burkle's separate property, principally personal effects, furniture, automobiles and several horses. |
| [119] | *fn2 Elsewhere, the agreement recited that "the most significant factors and critical elements for Jan in entering into this Agreement are that it provides her with liquidity and predictability and reduces her risk of potential loss." |
| [120] | *fn3 The court elaborated: "What representations were made, if Ms. Burkle wants to bring in the lawyers and accountants who represented her, that's her decision. If she wants to do discovery as to the representations made to her from Mr. Burkle and his entourage, legal and financial, certainly she is entitled [to] do that, as to what representations were made. [¶] She is entitled to do discovery as to, in my opinion, the reasons that things happened the way they did, and why is it that she received only these documents and not the other documents." |
| [121] | *fn4 The other witnesses were Donald L. Gursey (of the forensic accounting firm), Melinda Wade (a friend of the Burkles), and Naoma Nicholls (Mr. Burkle's assistant). |
| [122] | *fn5 The trial court expanded on the point: "This reference [in Harlan's memorandum] was not by chance. [Ms. Burkle's] failure to call Mr. Harlan to testify regarding this matter at trial further supports the Court's finding that such possible merger was disclosed by [Mr. Burkle] to [Ms. Burkle]. Furthermore, the merger between Food-4-Less and Fred Meyer Co., was publicly announced on November 6, 1997, and [Mr. Burkle] did not execute the Agreement until November 22, 1997. Yet, despite exchanges of correspondence and telephone calls between Mr. Harlan and Mr. Karton during that 16-day period, at no time ... did Mr. Harlan request a change in the Agreement as a result of the publicly-announced merger." |
| [123] | *fn6 The forensic accounting firm, Gursey, Schneider & Co., performed comparatively minor services, preparing a cash flow report and billing $4,552.50 through July 31, 1997. However, as of August 28, 1997, the firm continued ready, willing and able to do further work, had it been assigned. |
| [124] | *fn7 The trial court's statement of decision states that the court drew no inference from Ms. Burkle's assertion of these privileges. |
| [125] | *fn8 The Supreme Court explains: "The primary consequences of designating a relationship as fiduciary in nature are that the parties owe a duty of full disclosure, and that a presumption arises that a party who owes a fiduciary duty, and who secures a benefit through an agreement, has done so through undue influence.... It has long been the rule that '[w]hen an interspousal transaction advantages one spouse, " [t]he law, from considerations of public policy, presumes such transactions to have been induced by undue influence." ' " (Bonds, supra, 24 Cal.4th at pp. 27-28, 99 Cal.Rptr.2d 252, 5 P.3d 815, citations omitted.) |
| [126] | *fn9 Probate Code section 16004, the successor to former Civil Code section 2235, now provides in pertinent part: "A transaction between the trustee and a beneficiary ... by which the trustee obtains an advantage from the beneficiary is presumed to be a violation of the trustee's fiduciary duties." (Prob.Code, § 16004, subd. (c).) |
| [127] | *fn10 In Dimond, the Supreme Court took the view, disapproved in Rader v. Thrasher, supra, 57 Cal.2d at page 252, 18 Cal.Rptr. 736, 368 P.2d 360, that the presumption of undue influence in a spousal transaction " cannot appear until the presumption of a sufficient consideration, arising from the written obligation, has been overcome by proof." (Dimond, supra, 103 Cal. at p. 102, 37 P. 189.) |
| [128] | *fn11 The point is demonstrated by cases involving the presumption of undue influence exercised by a beneficiary under a will. The presumption of undue influence arises if three elements are shown: a confidential relationship, active participation in the preparation of the will, and undue profit accruing to the beneficiary. If those elements are shown, a presumption of undue influence arises and the will proponent has the burden of proving no undue influence. However, "[i]t is for the trier of fact to determine whether the presumption will apply and whether the burden of rebutting it has been satisfied." (Estate of Sarabia (1990) 221 Cal.App.3d 599, 605, 270 Cal.Rptr. 560.) |
| [129] | *fn12 Ms. Burkle points out that the employment of able counsel does not relieve a spouse of his or her fiduciary obligations. (Vai v. Bank of America (1961) 56 Cal.2d 329, 339-340, 15 Cal.Rptr. 71, 364 P.2d 247 (Vai ).) We agree. The point, however, is irrelevant to the determination of whether one spouse has obtained an unfair advantage in an interspousal transaction and thus raised a presumption of undue influence. |
| [130] | *fn13 Haines involved a quitclaim deed by which the wife deeded her interest in the couple's residence to the husband, during the period in which their marriage was deteriorating, in return for the husband's co-signature on a car loan for an automobile needed by the wife. As the court observed, "where Judy transferred her interest in real property to Clarence for his cosignature on an automobile loan-clearly inadequate consideration for execution of the quitclaim deed-Clarence properly should have borne the burden of rebutting the presumption of undue influence...." (Haines, supra, 33 Cal.App.4th at p. 296, 39 Cal.Rptr.2d 673.) In Lange, the trial court found a husband's $250,000 promissory note and deed of trust in favor of his wife, which the husband executed at the wife's behest for her separate property contributions to the acquisition and improvement of their jointly owned residence, provided the wife with a financial advantage and were presumed to have been obtained through undue influence. (Lange, supra, 102 Cal.App.4th at pp. 361, 363, 125 Cal.Rptr.2d 379.) The wife argued she obtained no advantage as a matter of law, because the note and deed of trust she prepared for her husband's signature were a substitute for her statutory rights to reimbursement. The court of appeal found the wife received an advantage as a matter of law, because she became a secured creditor additionally entitled to 10 percent interest on the husband's obligation (which amounted to $870,000 by the time of trial), rights to which she would not be entitled had she pursued her statutory right to reimbursement. (Id. at p. 364, 125 Cal.Rptr.2d 379.) The court of appeal also found the trial court correctly concluded the wife did not dispel the presumption of undue influence. (Id. at p. 365, 125 Cal.Rptr.2d 379.) Lange was not a case where the husband received any advantage from the transaction. |
| [131] | *fn14 Ms. Burkle argues the agreement gave Mr. Burkle an advantage as a matter of law, because the $30 million plus 5% interest to be paid to her upon division of the community estate was an unsecured promise, and was to be paid in installments. Her theory is that Mr. Burkle's unsecured promise was "worth much less than Jan's share of the community property which was to be actually turned over to Ron when the [post-marital agreement] was triggered." The argument is flawed for two reasons. First, it is impossible to know the value of the community property that was to be awarded to Mr. Burkle at an unknown future date. As the trial court observed, Ms. Burkle was willing to accept the agreed amount, "rather than accept the risk of falling asset values, given [Mr. Burkle's] investment strategy." In other words, Ms. Burkle would obtain the agreed $30 million plus interest "regardless of any decrease in the overall size of the marital estate." Ms. Burkle's argument works only in retrospect. Second, when spouses agree on a division of property, "no law requires them to divide the property equally, and the court does not scrutinize the [marital settlement agreement] to ensure that it sets out an equal division." (Mejia v. Reed (2003) 31 Cal.4th 657, 666, 3 Cal.Rptr.3d 390, 74 P.3d 166.) |
| [132] | *fn15 Ms. Burkle also contends the substantial evidence rule does not apply because the trial court "failed to respond to virtually all of Jan's Objections and Requests for Findings, thus invoking the provisions of C.C.P. § 634...." Ms. Burkle misconceives the purpose and effect of Code of Civil Procedure section 634. Section 634 applies when a statement of decision fails to resolve or is ambiguous as to a controverted issue, and the omission or ambiguity is brought to the court's attention. In such a case, "it shall not be inferred on appeal ... that the trial court decided in favor of the prevailing party as to those facts or on that issue." (Code Civ. Proc., § 634.) However, the trial court is not required to respond point by point to issues posed in a request for a statement of decision. "The court's statement of decision is sufficient if it fairly discloses the court's determination as to the ultimate facts and material issues in the case." (Golden Eagle Ins. Co. v. Foremost Ins. Co. (1993) 20 Cal.App.4th 1372, 1380, 25 Cal.Rptr.2d 242; see also Bauer v. Bauer (1996) 46 Cal.App.4th 1106, 1118, 54 Cal.Rptr.2d 377 [trial court "is not required to make an express finding of fact on every factual matter controverted at trial, where the statement of decision sufficiently disposes of all the basic issues in the case"]; In re Marriage of Garrity & Bishton (1986) 181 Cal.App.3d 675, 686-687, 226 Cal.Rptr. 485 [trial court's statement of decision is required only to state ultimate rather than evidentiary facts].) Ms. Burkle fails to identify specifically any material controverted issue or ultimate fact that the statement of decision left unresolved or ambiguous. The five or six objections she mentions in her brief as having been unanswered in the statement of decision include, for example, an objection to the trial court's finding that the credible evidence overwhelmingly established that any presumption of undue influence was rebutted. Her objection, as Mr. Burkle points out, was merely an expression of disagreement with the trial court's conclusion. The trial court's statement of decision in this case fairly discloses its determinations on all the ultimate facts and material issues in the case, and Ms. Burkle's challenge on this ground has no merit. |
| [133] | *fn16 Ms. Burkle claims not only that Mr. Burkle had the burden of proof, but that he was required to prove lack of undue influence by clear and convincing evidence. For this point, he cites Gold v. Greenwald (1966) 247 Cal.App.2d 296, 306, 55 Cal.Rptr. 660 (Gold ), which held an attorney must offer "clear and satisfactory evidence" that a transaction with a client was fair and equitable, no advantage was taken by him, and the client was fully informed. To the extent Gold may be read to require clear and convincing evidence, we prefer to follow the more recent decision in Mathews, which involves a marital dissolution and is directly on point. In any event, the trial court in this case found the credible evidence was overwhelming on the point. |
| [134] | *fn17 E.g., Fukuda v. City of Angels (1999) 20 Cal.4th 805, 824, 85 Cal.Rptr.2d 696, 977 P.2d 693 [trial court erred in placing the burden of proof in administrative proceeding on the wrong party and in failing to presume the correctness of the administrative decision; court rejected contention that the error did not affect the trial court's decision, because the record demonstrated that the trial court repeatedly relied on the failure to meet the burden of proof, and indeed stressed that the evidence was evenly balanced and the party with the burden of proof would lose]; Searle v. Allstate Life Ins. Co. (1985) 38 Cal.3d 425, 439, 212 Cal.Rptr. 466, 696 P.2d 1308 [insurer had the burden to prove insured's suicide was intentional; an erroneous instruction allowed the jury to conclude that beneficiary of policy was required to prove that the insured acted unintentionally and insurer had no burden to prove any of the contested issues]; Buzgheia v. Leasco Sierra Grove (1997) 60 Cal.App.4th 374, 393, 70 Cal.Rptr.2d 427 [giving the wrong party the burden of proof on a dispositive issue when the evidence is in dispute is a major instructional error, but a judgment may not be reversed for misdirection of the jury absent a miscarriage of justice]; In re Marriage of Schwartz (1980) 104 Cal.App.3d 92, 95-96, 163 Cal.Rptr. 408 [wife sought modification of a court-approved custody agreement that allowed one child to reside with the wife and the other with the husband; trial court prejudicially abused its discretion by making its ruling on the basis of its "unshakable prejudice" and preexisting bias against splitting custody; in addition, "[s]omehow the court had persuaded itself that [the husband], rather than [the wife] was the moving party" and had the burden of proof, an error which was itself sufficient to mandate reversal]. |
| [135] | *fn18 See also In re Marriage of Friedman (2002) 100 Cal.App.4th 65, 72, 67, 122 Cal.Rptr.2d 412 [appellate court was bound by the trial court's factual finding that the husband carried the burden of showing that the wife " 'was not induced to execute the postnuptial agreement through mistake, undue influence, fraud, misrepresentation, false promise, concealment, nondisclosure or any other breach of the [spouses'] confidential relationship' "; [j]udicial erasure of a competent adult's signature on an agreement does not serve the purpose of the law of contracts, i.e., to protect the reasonable expectations of the parties" ]. |
| [136] | *fn19 Ms. Burkle claims, for example, that Mr. Burkle was required to inform her, in writing, that upon consummation of the Food-4-Less/Ralphs merger with Fred Meyer/Hughes (announced just after Ms. Burkle signed the agreement and consummated some four months later), the Ralphs stock "would no longer be privately held but traded into public shares of Fred Meyer stock," and the merger would result in a "$20 Million fee payable to Yucaipa, a community company; and the issuance of to Ron of $14 Million in stock warrants." The trial court found that this information "should readily have been discovered and addressed prior to the parties' entry into the Agreement in 1997 if [Ms. Burkle] and her counsel had reviewed the information which [Mr. Burkle] made available to them...." |
| [137] | *fn20 Cf. Collins v. Collins (1957) 48 Cal.2d 325, 309 P.2d 420 [wife who was aware that her husband had not disclosed any information about their community property, and who waived the disclosure in writing when she executed a property settlement agreement, knowingly chose to deal at arm's length and rely on her own investigation of community assets, thus terminating the fiduciary relationship and attendant duty to disclose]. While we do not suggest the fiduciary relationship was terminated in this case, certainly Ms. Burkle knew about the mergers being negotiated by Mr. Burkle; knew the post-marital agreement contained no references to any mergers; acknowledged she had had the opportunity to conduct as much independent discovery, appraisal and valuation as she wished; and expressly stated that "she ha[d] not relied on the word of Ron in determining the value of the assets set forth" in the agreement. |
| [138] | *fn21 In the Burkles' agreement, the parties purported to release their fiduciary responsibilities to each other. We need not consider the question whether such a release is permissible under California law, as the trial court did not rely on or even allude to any waiver or release of fiduciary duties. It expressly found that Mr. Burkle fulfilled his fiduciary duties to Ms. Burkle, "including those in connection with the negotiation of and entry into" the agreement and "including his duty to make a true and full disclosure of community assets." |
| [139] | *fn22 The court also observed that it was "readily apparent" that many representations the husband made to the wife "were either not true or at least only partially true" (Vai, supra, 56 Cal.2d at p. 340, 15 Cal.Rptr. 71, 364 P.2d 247); that many of the wife's contentions relating to the existence of actual fraud appeared meritorious; and that the deception was practiced on the husband's own attorneys as well as on the wife. (Id. at p. 342, 15 Cal.Rptr. 71, 364 P.2d 247.) |
| [140] | *fn23 Ms. Burkle also cites In re Marriage of Brewer & Federici (2001) 93 Cal.App.4th 1334, 113 Cal.Rptr.2d 849 (Brewer ). It, too, is of no assistance to Ms. Burkle. In Brewer, a marital settlement agreement was set aside on the ground of mistake of fact, because the wife's final declaration of disclosure, required by Family Code section 2105 to include all material facts regarding the valuation of community assets, listed as "unknown" the value of one of her pension plans. The case does not involve misrepresentation or concealment; it merely held the wife did not meet her disclosure obligations when she stated the value of the pension, which was one of the largest community assets and whose monetary value was easily ascertainable, was unknown. (Id. at pp. 1346-1347, 113 Cal.Rptr.2d 849.) |
| [141] | *fn24 Ms. Burkle's claims of actual misrepresentations relate to the first merger, specifically, the description and value of the Smith's shares which Mr. Burkle claimed as separate property. However, as Boeseke stated, "when the husband takes the position certain property is separate, the wife must then investigate the facts. If she and her counsel choose to accept his assertion, she may not collaterally attack the subsequent judgment approving the settlement." (Boeseke, supra, 10 Cal.3d at p. 850, 112 Cal.Rptr. 401, 519 P.2d 161.) |
| [142] | *fn25 Ms. Burkle makes several other arguments related to her claims of concealment and other bases for asserting the invalidity of the post-marital agreement, none of which have merit: 1. Ms. Burkle complains in effect that she was unable to show whether the information Mr. Burkle provided in the schedules to the agreement was "truthful or fraudulent" because of the discovery "firewall" erected when the trial court refused, at this stage of the proceedings, to compel discovery concerning the assets and liabilities identified on the schedules. We can discern no error in the court's discovery ruling, which allowed full discovery on the circumstances surrounding entry into the agreement-which circumstances included Ms. Burkle's full access to the information she now complains is behind the firewall. 2. Ms. Burkle contends that, even in the absence of any actual fraud or actual undue influence, statutory limitations on the specific enforcement of contracts in Civil Code section 3391 prevent Mr. Burkle from enforcing the contract against Ms. Burkle. Section 3391 prevents enforcement of specific performance against a party to a contract if she has not received adequate consideration, or if the contract is not, as to her, just and reasonable. Section 3391 does not apply, because (a) this is not an action for specific enforcement of a contract, and (b) even if it were, the trial court found the agreement was fair and equitable in light of each party's objectives, and implicitly, if not explicitly, found adequate consideration. Ms. Burkle has not challenged the sufficiency of the evidence supporting these findings, but relies on her claim that all the trial court's fact findings are " vitiate[d]" by the asserted misallocation of the burden of proof. As we have seen, that claim is mistaken. 3. In connection with her contention that Mr. Burkle must prove the post-marital agreement was "fair, just and equitable," Ms. Burkle asserts that "this means that the division of the community must be equal." Her assertion is mistaken. Spouses may agree on an unequal distribution of assets. "As long as such agreement is based upon a complete and accurate understanding of the existence and value of community and separate assets that are material to the agreement, the parties are free to decide on an unequal distribution." (Brewer, supra, 93 Cal.App.4th at p. 1349, 113 Cal.Rptr.2d 849.) |
| [143] | *fn26 Family Code section 2104 requires each party to a dissolution proceeding to serve on the other, "[a]fter or concurrently with service of the petition for dissolution ... a preliminary declaration of disclosure, executed under penalty of perjury on a form prescribed by the Judicial Council." Along with the preliminary declaration of disclosure, each party must provide the other party with a completed income and expense declaration. (Fam.Code, § 2104, subds. (a) & (e).) |
| [144] | *fn27 Family Code section 2105, subdivision (a), states: "Except by court order for good cause, before or at the time the parties enter into an agreement for the resolution of property or support issues other than pendente lite support, or, if the case goes to trial, no later than 45 days before the first assigned trial date, each party, or the attorney for the party in this matter, shall serve on the other party a final declaration of disclosure and a current income and expense declaration, executed under penalty of perjury on a form prescribed by the Judicial Council, unless the parties mutually waive the final declaration of disclosure. The commission of perjury on the final declaration of disclosure by a party may be grounds for setting aside the judgment...." (Fam.Code, § 2105, subd. (a).) |
| [145] | *fn28 The parties may stipulate to a mutual waiver of the requirements concerning the final declaration of disclosure, but only under specified conditions, including exchange of the preliminary disclosure declarations and exchange of current income and expense declarations. (Fam.Code, § 2105, subd. (d).) |
| [146] | *fn29 Some amendments have been made to Family Code sections 2100 et seq. since the Burkles' 1997 post-marital agreement. Because the changes are insignificant for purposes of our discussion, all quotations in this section reflect the current statutory language. |
| [147] | *fn30 In 2001, the Legislature also added a provision to section 2107, which now specifies that if a court enters a judgment when the parties have failed to comply with the statutory disclosure requirements, "the court shall set aside the judgment." (Fam.Code, § 2107, subd. (d).) |
| [148] | *fn31 See also the language in Bonds, supra, 24 Cal.4th at page 30, 99 Cal.Rptr.2d 252, 5 P.3d 815, referring to sections 2100 et seq. and to the statute's "policy of equal division of assets at the time of dissolution...." The Burkles' post-marital agreement was not entered into "at the time of dissolution," and indeed permitted an election to divide the community estate at any time. |
| [149] | *fn32 Needless to say, given the vagaries of available proof, the parties to a dissolution proceeding who hope to reconcile and at the same time resolve property issues in a post-marital agreement would be well-advised to dismiss the proceeding before executing an agreement. Dismissal will avoid the uncertainties attendant upon the need to later present sufficient proof that an agreement was executed while the dissolution proceeding was in abeyance and that neither party contemplated the imminent dissolution of the marriage. |
| [150] | *fn33 Mr. Burkle's request for judicial notice of the certified case history report in the first dissolution proceeding is granted. The report shows the only documents filed in the 1997 case before May and June 2003 (when a substitution of attorney and notice relating to unavailability of counsel were filed, followed by a request for dismissal on June 24, 2003) were the two documents described in the text. |
| [151] | *fn34 Family Code section 2105 also contains a "good cause" exception to its provisions. (Fam.Code, § 2105, subd. (a).) The trial court found that even if the disclosure declaration requirements applied to this case, good cause would exist to enforce the agreement without strict compliance because the parties were represented by sophisticated counsel and expert forensic accountants, there was no impediment to investigation, and Ms. Burkle accepted the benefits of the agreement for years before challenging it. In view of our conclusion that section 2105 does not apply, we need not consider the parties' arguments on the "good cause" exception. |
| [152] | *fn35 Ms. Burkle's January 7 letter stated in part that, "to the extent that the filing of the Petition for Dissolution of Marriage did not constitute notice of rescission under the Civil Code, Janet Burkle hereby formally rescinds the purported agreement entered into as of November 22, 1997, with Ronald W. Burkle." |
| [153] | *fn36 See also Civil Code section 1440: "If a party to an obligation gives notice to another, before the latter is in default, that he will not perform the same upon his part, and does not retract such notice before the time at which performance upon his part is due, such other party is entitled to enforce the obligation without previously performing or offering to perform any conditions upon his part in favor of the former party." |
| [154] | *fn37 The trial court also found that the "doctrine of laches bars [Ms. Burkle] from contesting the validity and enforceability of the Agreement on the basis of the circumstances surrounding its negotiation and execution, its performance, and the long delay in raising challenge to the Agreement." |
| [155] | *fn38 Mr. Burkle argues at length that, because Ms. Burkle did not challenge the trial court's findings on ratification, estoppel and laches in her opening brief, the findings are presumed correct and the issue is forfeited on appeal. (Christoff v. Union Pacific Railroad Co. (2005) 134 Cal.App.4th 118, 125, 36 Cal.Rptr.3d 6.) However, since these equitable defenses may not have applied if there had been any merit to Ms. Burkle's contention the agreement was the product of undue influence, and since Mr. Burkle had the opportunity to file a supplemental brief, we exercise our discretion to address the matter on the merits. |
| [156] | *fn39 Family Code section 1101, subdivision (d)(3), provides that "[t]he defense of laches may be raised in any action brought under this section." Subdivision (a) states that: "A spouse has a claim against the other spouse for any breach of the fiduciary duty that results in impairment to the claimant spouse's present undivided one-half interest in the community estate, including, but not limited to, a single transaction or a pattern or series of transactions, which transaction or transactions have caused or will cause a detrimental impact to the claimant spouse's undivided one-half interest in the community estate." |
| [157] | *fn40 See also Gedstad v. Ellichman (1954) 124 Cal.App.2d 831, 834-835, 269 P.2d 661 [judgment affirmed against a wife seeking to void a property settlement agreement based on concealment of community assets; wife was precluded from claiming the agreement was void because a letter showed "such knowledge of the possible defects of the agreement as to put [wife] on inquiry and to require her to act diligently to protect her rights"; trial court's finding of laches, absent a palpable abuse of discretion, is binding on appeal]. |
| [158] | *fn41 In any event, the trial court found that Mr. Burkle detrimentally relied on Ms. Burkle's promises and representations by, "among other things, complying with the Agreement for years and accumulating property with the understanding that under the Agreement it would be his separate property." |