d'Elia v. d'Elia

• Decision Date: 14 October 1997
• Docket Number: No. G015080,G015080
• Citation: 68 Cal.Rptr.2d 324,58 Cal.App.4th 415
• Parties: , 97 Cal. Daily Op. Serv. 8040, 97 Daily Journal D.A.R. 12,959 Haruyo D'ELIA, Plaintiff and Appellant, v. Serge D'ELIA, Defendant and Appellant.
• Court: California Court of Appeals Court of Appeals

Page 324

68 Cal.Rptr.2d 324

58 Cal.App.4th 415, 97 Cal. Daily Op. Serv. 8040,

97 Daily Journal D.A.R. 12,959

Haruyo D'ELIA, Plaintiff and Appellant, v. Serge D'ELIA, Defendant and Appellant.

No. G015080.

Court of Appeal, Fourth District, Division 3, California.

Oct. 14, 1997.

Certified for Partial Publication. ^*

As Modified on Denial of Rehearing Nov. 14, 1997.

Review Withdrawn Jan. 14, 1998.

Gross, Gross & Simon, Marc Dempsey Gross, James M. Simon, Mitchell, Silberberg & Knupp and Hayward J. Kaiser, Los Angeles, for Plaintiff and Appellant.

Douglas L. Thorpe, Gale S. Baker, Sanford T. Sherman, Perkins Coie and William P. Hogoboom, Los Angeles, for Defendant and Appellant.

Latham & Watkins, Wayne S. Flick, Catherine S. Bridge and Damon C. Watson, Los Angeles, for amicus curiae in support of Plaintiff.

SILLS, Presiding Justice.

I. INTRODUCTION

Once again this court confronts a family law case which has been allowed to metastasize into something else. In Askew v. Askew (1994) 22 Cal.App.4th 942, 28 Cal.Rptr.2d 284, a distressed ex-husband sought tort damages in an independent fraud action for false promises of love and affection. In Smith v. Pust (1993) 19 Cal.App.4th 263, 23 Cal.Rptr.2d 364, a cuckolded husband sought tort damages against his ex-wife's lover. In In re John W. (1996) 41 Cal.App.4th 961, 48 Cal.Rptr.2d 899, a fairly well-to-do couple managed to avail themselves of taxpayer-financed counseling and therapy by having their custody dispute litigated in the juvenile dependency courts.

The present case arises out of facts even more directly related to the typical family law case than Askew, Smith, or John W. Here, we have the fairly garden-variety situation of one spouse refraining from conducting an independent appraisal of a family business and consequently making a bad deal in a marital settlement agreement--despite the fact that she was represented by at least two lawyers during the negotiations. This sort of thing happens all the time in family law, and the remedy, if there indeed has been misrepresentation as to the value of the asset, is to set aside the agreement and any family law judgment which may incorporate the agreement. (E.g., Vai v. Bank of America (1961) 56 Cal.2d 329, 15 Cal.Rptr. 71, 364 P.2d 247; In re Marriage of Varner (1997) 55 Cal.App.4th 128, 63 Cal.Rptr.2d 894; see generally In re Marriage of Stevenot (1984) 154 Cal.App.3d 1051, 1072, 202 Cal.Rptr. 116 [discussing necessity of setting aside marital settlement agreement as well as judgment incorporating it]; see also Family Code sections 2120 through 2129 [detailing procedures for obtaining relief from family law judgments].) ¹ The family law court also retains the power to impose sanctions on a party whose misrepresentations required litigation to undo any agreement or judgment. (See Fam.Code, § 271.)

In the present case, however, the aggrieved spouse did not seek to set aside the agreement. Rather, because the particular community asset involved was stock in a privately held corporation, she filed a lawsuit seeking damages under state securities fraud laws. (See Corp.Code, §§ 25401-25402, 25501-25502.)

There is no precedent for applying securities fraud laws to marital settlement agreements. In fact, the idea is a bad one, because it forces couples undergoing the already traumatic process of dissolution of marriage into the role of securities buyer and seller, complicating and making a process which is already too complicated even more expensive. ² It creates an incentive to carry over the (all too often) characteristic bitterness of family litigation into the separate arena of securities litigation, where one spouse can try to smack the other with the really big club of tort damages rather than curing a failure to live up to Family-Code obligations of disclosure within the more predictable confines of a dissolution proceeding.

Not only is the idea a bad one, but the application of securities fraud law to marital settlement agreements is legally incorrect because it does not accord with the fundamental reality of the division of a community estate. It does violence to the substance of the division of community property, whether by court judgment or by agreement, to style the allocation to one spouse of any particular community asset as a "sale." California's community property laws aim to assure the equal division of the community estate as a whole, not force husband and wife into the role of stock traders. Accordingly, we now reverse the judgment in this case to the extent that it awards damages on the basis of state securities fraud laws.

We stress that our decision does not rest on some revival of the doctrine of spousal immunity. If, for example, a spouse who was a stockbroker sold her husband 100 shares of ACME-Strike-It-Rich gold mining stock based on the false statement that the company had just found an enormous gold field on its property, the husband could sue the wife, just as any other buyer of stock could sue in the same circumstances. But this case does not involve anything like a true "sale" of stock from one spouse to other independent of special duties of disclosure imposed by the substantive family law itself. Here the defendant spouse's duties of disclosure on which the plaintiff predicated her securities fraud case arose out of the family law, not the securities law, and it is therefore unfair to allow the plaintiff to assert a securities claim based on family-law-imposed duties of disclosure.

II. FACTS AND CASE HISTORY ³

Serge d'Elia and Haruyo ("Sally") ⁴ d'Elia were married in 1961 and separated in 1981. During the 1960's, Serge and Sally invested $400,000 in the Van Doren Rubber Company, otherwise known to sneaker aficionados as "Vans." In 1983, Sally petitioned for dissolution. During the course of the dissolution, Sally's attorney recommended an appraisal of the Vans shoe company. Serge told Sally that an appraisal was a waste of time.

In 1984, Vans filed for bankruptcy. Serge requested that Sally put aside the dissolution proceedings so he could devote his energy to the company.

In 1985, Vans emerged from bankruptcy. After that, Serge and Sally had a meeting where Serge told her that he wanted to settle their property rights and was tired of dealing with so many lawyers. Serge told Sally that if she would not hire an attorney or appraiser, he would be fair to her in the settlement. Sally then fired her attorney. That attorney had already engaged the services of a forensic accounting firm for the purpose of doing a full evaluation of Vans's stock. A marital settlement agreement was then negotiated by the parties through the corporate attorney for Vans.

During those negotiations, Serge told Sally that the value of her community interest in Vans was about $525,000. Sally questioned Serge about a newspaper article which indicated a higher value for the company, but Serge assured her the newspaper was wrong and he knew the value of the company better than any reporter. Serge also told Sally that if she chose to keep her share of the community stock she would not be allowed to vote it because none of the wives (of the stockholders) could vote; Vans had never paid any dividends and never would; and there were no plans to sell the company. The most that Serge ever told Sally about the company during the negotiation period was that "sales were up" and if they continued to be up the company would be in good shape. Serge also never provided Sally with any financial statements, weekly or monthly statements, or sales projections.

After the negotiations were completed, the corporate attorney drew up a draft agreement. The corporate attorney advised Sally to retain an attorney to review the language of the agreement, but not the asset values. Sally complied. While she obtained her own lawyers (one of whose signatures would appear under the heading, "Approved as to Form and Content" on the signature page of the agreement), she did not permit them to conduct an independent appraisal of asset values, despite their advice to the contrary.

On July 23, 1986, Serge and Sally signed the marital settlement agreement. The document began by reciting that irreconcilable differences had arisen between Serge and Sally, and the parties had accordingly decided to live permanently separate and apart. It further recited that the dissolution action filed earlier by Sally was still pending, and stated that its purpose was to "settle and forever adjust by and between themselves all present and future property and support rights ... that either party may have or claim to have, including rights of support, against the other."

The agreement divided the community property of the parties, which included 752.5 shares of the outstanding common stock of Vans. It mentioned several things, including the difficulty of valuing the stock in a closely held corporation, and the fact that the parties had discussed either dividing the stock in kind or having one party purchase the interest of the other. The agreement then recited that "the Husband has heretofore offered and the Wife has heretofore accepted Husband's offer to purchase her interest in said stock for the price and on terms and conditions" as set forth in the agreement. Essentially, those terms and conditions were that Serge would make three equal payments of $175,000, and that pending full payment, all the stock would be pledged to Sally as security.

At the time, however, Serge knew that the unadjusted book value of the d'Elia's stock in Vans was about $2 million. There is no question that Serge performed his part of the bargain. Sally received her $525,000.

The agreement also provided that to preserve the "privacy and confidentiality" of the parties "with respect to the allocation and division of assets" between them, the agreement would not be submitted to the court for review or filed with the court or attached to the judgment of dissolution....