Lane v. Crouch (In re Marriage of Lane)

• Docket Number: A154434
• Decision Date: 27 December 2021
• Parties: In re the Marriage of KATHERINE LANE and DAVID CROUCH. v. DAVID CROUCH, Respondent and Appellant. KATHERINE LANE, Petitioner and Appellant,
• Court: California Court of Appeals Court of Appeals

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In re the Marriage of KATHERINE LANE and DAVID CROUCH.

KATHERINE LANE, Petitioner and Appellant, v. DAVID CROUCH, Respondent and Appellant.

A154434

California Court of Appeals, First District, Second Division

December 27, 2021

NOT TO BE PUBLISHED

San Mateo County Super. Ct. No. F0122077

Richman, Acting P.J.

This marital dissolution action is sadly typical for its protracted bitterness. It is notably untypical in that the case took five years to get to trial; the matter was submitted for decision only after, the family court's words, "32 days of trial and three days of closing argument"; the trial generated 30 volumes of reporter's transcripts; and the register of action requires 243 pages. Issues of spousal and child support were determined, but are not challenged on appeal. The same is true with respect to many other financial issues.

The most contentious issue concerns a construction company that was the main source of income and support for the family throughout the marriage. The family court found that David Crouch "singlehandedly impaired" Katherine Lane's "interest [in the business] by trying to destroy and/or dissipate it." The court further found that Crouch "stopped working the . . . business," and went to work for Zega Builders, a construction company owned by a man who had been Crouch's partner before separating from Lane. According to the court, Crouch "went to work for Zega, gave Zega his name, designs and reputation, all of which were critical to the business. He . . . gave Zega his employees, trucks and other assets." In short, in violation of his fiduciary duties to Lane, Crouch essentially handed the business to Zega on a silver plate. Then, as the trial was nearing its end, Zega paid Crouch $2.2 million which Crouch called as a "bonus," a characterization the family court rejected.

Nevertheless the family court concluded that Crouch's "breach of fiduciary duty . . . [did] not rise to the level of Family Code^[1][section] 1101[, subdivision] (h) which would have mandated [sic] an award" to Lane of "100% of the value" of the business.

Both parties have appealed the judgment.^[2] Crouch contends the family court erred in five ways: (1) in concluding he violated his fiduciary duties to Lane; (2) in valuing the business using the amount of the "bonus" paid him; (3) in "failing to credit [him] for the tax liability on the $2, 200, 000 payment received pre-judgment"; (4) in treating a parcel of real property as a community asset; and (5) in ordering him to make certain reimbursements. We conclude all of these claims are without merit.

On her appeal, Lane presents the most far-reaching contention. She argues that, having found that Crouch had violated his fiduciary duties, the family court erred in awarding her only half of the value of the business, not the 100% allowed by Family Code section 1101 (section 1101). There is authority for Lane's argument that in some situations it is "mandatory" for the family court to award one party the full value of the community asset. But "mandatory" is subject to a critical condition: the family court, as the trier of fact, has concluded that one or more of the criteria specified in the section's subdivision (h) has been proven. That was not the case here, where the trier of fact expressly found that the evidence of Crouch's manifold breaches of his fiduciary duties did not satisfy one of those criteria, namely, that Crouch was "guilty of oppression, fraud, or malice," the standard for punitive damages in civil actions that is incorporated by reference into section 1101.

Lane asks this court to conclude that the family court erred in not making that determination, and that correcting such error requires this court to decide that, because both fraud and malice are shown, as a matter of law, the criteria for a mandatory award are established by the record. In effect, Lane is proposing that this court should award her punitive damages in the face of an express determination by the trier of fact not to award those damages. So far as we can discover, no California reviewing court has ever overruled such a decision by a trier of fact. This court will not be the first. We will affirm the judgment.

BACKGROUND

The extensive record, viewed most favorably in support of the judgment (Roby v. McKesson Corp. (2009) 47 Cal.4th 686, 693-694), supports the following recitals:

Crouch, who is Australian, met Lane in the United States in 1999. The following year, they moved to Australia and married. They moved back to California in 2002. They separated for good in July 2013, when Lane filed for dissolution of their marriage.

Crouch and Lane lived at 16 Anderson Way in Menlo Park. They lived on earnings from David Crouch Customs Homes (sometimes DCCH), whose primary business was designing and building single-family residences. It appears accepted by both parties that DCCH came into existence after the parties married. Crouch ran the business and oversaw its finances. Lane's involvement was minimal. She had no access to the firm's accounts, or Crouch's Australian bank accounts. Her involvement in the couple's personal finances was limited to use of one checking account for household expenses. Crouch made all deposits into this account. Lane was unaware that in 2007 Crouch bought land in Australia with community funds. Title was in his name alone.

It was soon after making this purchase that Crouch began pressing for the couple to return to Australia. This period also saw DCCH's operations severely and adversely impacted by the 2008 economic downturn. About 2011-2012, when the business returned to profitability, Crouch resumed pressuring Lane to move to Australia. With no great enthusiasm, she agreed, because Crouch had given her an ultimatum: "either I move to Australia with him, or he was going to leave the family. Divorce me-I don't have my name on anything-and he was going to take the kids." Lane agreed, but only "[b]ecause our marriage was in terrible shape, and I felt like he was trying to get me to Australia, file for divorce, and I wouldn't be able to bring the kids home."

In anticipation of the move, Crouch "stopped looking for work." "I was pretty much looking at walking away from the company, shutting it down. And then, at the eleventh hour, that's when I got contacted by Ken Friedman in late February, early March of 2013, [who was] interested about getting into the business." Crouch and Friedman discussed Friedman buying an interest in DCCH and making it a partnership. Crouch told Lane that Friedman was going to buy DCCH for $400, 000. Friedman testified he thought that sum would only buy a half interest. Crouch did not tell Friedman of any intent to shut down DCCH when Crouch and Lane moved to Australia. Friedman started working-without pay-for several days a week at DCCH to gain "on-the-job training" in the construction business.

More concretely, in May 2013, Friedman and his wife entered into a joint venture with Crouch and Lane for the purchase, remodel, and resale of 5 Carolina Lane in Atherton. The Friedmans loaned Crouch and Lane $2 million (half of the purchase price). Title to the property was transferred to an LLC. Shortly thereafter, Crouch-who had previously claimed not to be "liquid"-paid back $1 million.

In May 2013, Crouch, Lane, and their two children moved from their Anderson Way home into the unrenovated Carolina Lane property. Two months later, Lane and the children moved back to Anderson Way, and she filed for dissolution.

According to Friedman, he created Zega Builders in August of 2013 "but there was nothing in it until June of 2014 . . ., when I started to make payroll." In June and July 2014, Crouch joined a number of former DCCH workers-whom Crouch had fired from DCCH-as employees of Zega. As of that time DCCH "was running out of money and . . . pretty much all [its] projects were finished up for Carolina, and by that point, I [Friedman] owned Carolina." Zega paid Crouch $12, 000 per month for 32 hours work, later increasing to $180, 000 annually for full-time work. Prior to joining, Zega, the DCCH workers had been "supervised" by Friedman on DCCH work. Zega completed a number of projects that had been started by DCCH. Friedman testified that he expected Crouch to bring to Zega any new projects that might come his (Crouch's) way.

In February 2014, Crouch and Lane sold their interest in the Carolina Lane property to the Friedmans in exchange for return of the $1 million already paid, and discharge of all other obligations and debts relating to the property.

In addition to whatever salary he drew from Zega, between July and September of 2016, Crouch was twice "loaned" $100, 000 by Zega. Neither was memorialized in writing. Neither produced discussion of repayment by Crouch.

On March 16, 2017, Crouch testified that he received only one "bonus" from Zega, for $100, 00, at the end of 2016. Two months later, on May 15, 2017, as the trial was nearing its end, Crouch testified that within the prior 30 days, he received "additional compensation" of $2.2 million that was deposited in the DCCH account. Crouch did not object when his counsel termed this payment a "bonus."

Additional information will be provided as needed in connection with discussion of the parties' contentions on these appeals.

DISCUSSION

I. The Business

A. The Governing Law

"[A]ccountability for the management of community assets is a fundamental aspect of the fiduciary duties owed between spouses." (In re Marriage of Prentis-Margulis & Margulis (2011) 198 Cal.App.4th 1252, 1269.)

Section 721, subdivision (b), provides in relevant part that "spouses are subject to the general rules governing fiduciary relationships that control the actions of persons...