I've recently blogged the 2nd Appellate District's March 3, 2011 decision in Marriage of Fong (2011) 193 Cal.App.4th 278 as it pertains to each party's obligation to comply with Family Code section 2105 and submit their Final Declarations of Disclosure prior to certain contested hearings, like a motion for attorney fees for noncompliance by the other party with the disclosure statutes. Indeed, Gary Fong was kind enough to weigh in on my case analysis and commented to my earlier blog.
What Conduct Justifies 271 Sanctions?
Marriage of Fong is also instructive in its application of Family Court section 271 governing sanctions awards for conduct that frustrates settlement and the efficient resolution of family law disputes. That section emphasizes the policy of California matrimonial law to "promote settlement of litigation" and "to reduce the costs of litigation by encouraging cooperation between the parties and attorneys."
The Wife in Fong filed a request for 271 sanctions against the Husband and asked for $150,000 as attorney fees and accountant's costs that she alleged the other party had unnecessarily caused her side. Specifically she submitted evidence at the sanctions' hearing that showed:
- That Gary Fong had failed to fully and timely respond to discovery concerning bank records, mortgage loan applications, refinancing, and rental income
- That he failed to cooperate in obtaining bank records directly from Canadian banks where he'd held accounts
- That he failed to respond to her two settlement offers
- That at trial he produced bank records that he'd failed to produce in response to discovery requests seeking those same records
- That Gary refinanced community real property on several occasions in violation of court orders
- That he failed to provide an accounting of all rents and refinances and the disposition of those proceeds, when he'd been ordered by the court to do so, and
- That he attempted to sell real property located in Canada in violation of a court order.
The trial court was persuaded by Wife's evidence and argument and imposed $100,000 in sanctions upon the Husband. It found that "[t]he trial court reasonably could conclude based on this evidence that Gary's conduct frustrated settlement and cooperation between the parties and counsel and justified an award of attorney's fees and costs...."
Because section 271 does not speak to a course of conduct as a predicate for sanctions, one can imagine that any of the above mis-steps could have supported the trial court's award. Taken in their totality however, once the trial court agreed with Wife's allegations it could clearly conclude that such conduct was the type that section 271 is intended to punish. None of this is surprising (nor uncommon in high conflict divorces), but at least lawyers and parties making these types of requests have specific misconduct and the Fong decision to buttress their sanctions' arguments.
But Fong supplies some additional guidance that was missing before. This involves the language of section 271 that "[t]he court shall not impose a sanction pursuant to this section that imposes an unreasonable financial burden on the party against whom the sanction is imposed." In a way this section potentially allows a party guilty of misconduct to insulate themselves from sanction consequences where part of their misconduct involves either or both the nondisclosure of assets that could be used to fund the sanctions award, or the value of those assets. I've never understood this limitation because a bad actor can truly 'get away with it' if they apparently lack sufficient financial resources - people without assets, or minimal income or assets, evidently get a free pass where those with assets do not. Often a spouse is misrepresenting their income stream, and so their FL-150 Income and Expense Declaration is inaccurate. Hence, lying behavior may be rewarded. In my experience trial courts are already reluctant enough to issue punishing financial orders.
Marriage of Fong changes this result somewhat, but does speak obliquely to what asset base is sufficient to upholding a sanctions' order. The trial court here gave $100,000 of the $150,000 the Wife asked for (and undoubtedly would have been upheld if it had given her $150,000), but Gary contended that it failed to consider his ability to pay and so the award should be set aside. His Final Property Declaration was on file, as was his Income and Expense Declaration. While the appellate court references the former in upholding the trial court's exercise of discretion, it completely ignored whatever information was contained in the I & E. This is an important and new explication of the law on sanctions that extends the scope of 271 and what evidence is required to support these types of awards: If either the income stream or the asset base support the conclusion of ability to pay, it will not work an "an unreasonable financial burden..." on the responding party. This was not clear before this ruling.
In terms of the sufficiency of the Husband's asset base to permit the sum of $100,000 to be awarded, all the reported decision tells us is this Gary owned:
- Nine rental properties
- A personal residence (a ranch)
- A yacht
- Savings accounts
- Gold coins
- And "other items" (possibly three calling birds and two turtle doves?)
Evidently the existence of these assets, the values of which are not set forth by the court, may create a presumption of an ability to pay that shifts the burden of proof onto the responding party to disprove that ability. Now, the decision doesn't exactly say that. What it does say is "Gary does not cite or discuss this evidence or argue that it is insufficient to justify the amount of the award" and that "Gary bore a greater burden of disclosure and fiduciary responsibility with respect to the community assets." The appellate language is a great victory for "out-spouses" - the disadvantaged party or domestic partner who doesn't control the community property marbles or the information relating to them. It is a realistic approach to remedying the difficulties and expense these litigants face in terms of producing evidence.
In guiding other trial courts this decision implies that a court can ignore income stream and does not need not know the actual value of the party's assets before sanctioning them under 271. After all, we have no idea whether the real estate contained equity. If the resisting party wants to disprove an ability to pay despite the existence of these types of items, once the requesting party has demonstrated misconduct the 271 respondent better present credible evidence of little or small value, or risk that value is assumed just by the existence of what appears to be an upper class lifestyle.
Marriage of Fong cites and follows upon In re Marriage of Tharp (2010) 188 Cal.App.4th 1295. Tharp is important for a number of reasons, not the least of which is that there the trial court failure to sanction was overturned as being insufficient and a misapplication of the law. Both cases are sending a message. Is anybody listening?
Taken together, the twin sisters of Fong and Tharp demonstrate that the noose is tightening around those parties who seek to obstruct either the fair exchange of information that is required by the fiduciary duties statutes, and those whom unreasonably fail to respond to settlement offers or to litigate cooperatively. Keep in mind that these folks must have spent a million dollars in legal fees with their back and forth.
As usual with these types of decisions, they tell family lawyers as much what not to do as what to do. It is a great decision, although without more information concerning Gary's net worth it provides only a generalized benchmark for what amount of sanctions is appropriate in these situations. This is the case's weakness, but also its strength.
Thurman W. Arnold III, CFLS