Sorge v. Sorge

• Decision Date: 14 March 2012
• Docket Number: Nos. D057677,D058611.,s. D057677
• Citation: 202 Cal.App.4th 626,12 Cal. Daily Op. Serv. 243,134 Cal.Rptr.3d 751,2012 Daily Journal D.A.R. 142
• Court: California Court of Appeals Court of Appeals
• Parties: In re the MARRIAGE OF Joseph and Maryanne K. SORGE. Joseph A. Sorge, Appellant, v. Maryanne K. Sorge, Respondent.

202 Cal.App.4th 626

134 Cal.Rptr.3d 751

12 Cal. Daily Op. Serv. 243

2012 Daily Journal D.A.R. 142

In re the MARRIAGE OF Joseph and Maryanne K. SORGE.Joseph A. Sorge, Appellant,

v.Maryanne K. Sorge, Respondent.

Nos. D057677, D058611.

Court of Appeal, Fourth District, Division 1, California.

Jan. 5, 2012.

Review Denied March 14, 2012.

Garrett Clark Dailey, Oakland, for Appellant.

Procopio, Cory, Hargreaves & Savitch, Lionel P. Hernholm, Jr., David M. Zachry, San Diego; Stephen Temko, San Diego, for Respondent.

AARON, J.

I.INTRODUCTION

Joseph A. Sorge appeals after the trial court modified the child support awarded to his ex-wife, Maryanne K. Sorge, and awarded Maryanne ¹ sanctions and attorney fees, both related to the costs of the underlying litigation, as well as pendente lite attorney fees for defending against Joseph's appeal.

On appeal, Joseph first contends that the trial court erred in calculating the child support amount. According to Joseph, the trial court ignored his bona fide business expenses in calculating his monthly income, in contravention of Family Code ² section 4058, subdivision (a)(2).

Joseph also contends that the trial court erred in concluding that for purposes of section 2102, subdivision (c), the parties' duty to disclose to each other, sua sponte, all material changes in their financial status continues from the date of separation until the trial court no longer has jurisdiction to order child support. Joseph argues that the court erred in determining that the cessation of a child support obligation is the event that constitutes a “valid, enforceable, and binding resolution of all issues relating to child ... support” under section 2102, subdivision (c). According to Joseph, because the trial court's award of sanctions to Maryanne was based in part on the court's erroneous interpretation of section 2102, subdivision (c), the sanctions order must be reversed.

Finally, Joseph contends that the trial court abused its discretion in awarding Maryanne attorney fees in the amount of $200,000 for proceedings in the trial court, and $60,000 in pendente lite attorney fees for proceedings on appeal ³ because Maryanne has no need for these fees, since she has a net worth of over $14 million, more than half of which is in liquid assets.

We conclude that the trial court erred in sanctioning Joseph on the ground that he breached his fiduciary duty under section 2102, subdivision (c) to disclose to Maryanne all material changes in his income. Specifically, we conclude that any fiduciary duty that Joseph had to disclose material changes in his income to Maryanne ended upon entry of their 2002 divorce decree. We reject all of Joseph's other contentions.

The trial court's sanction order must be reversed and the matter remanded for the trial court to reconsider that issue. In all other respects, we affirm the trial court's orders.

II.FACTUAL AND PROCEDURAL BACKGROUND

A. Factual background

Maryanne and Joseph were married in 1983, and separated in September 2000. The parties had three children. Maryanne filed a petition for divorce in Wyoming in November 2000.

Pursuant to a marital settlement agreement (MSA) that the parties entered into in Wyoming, the parties agreed to share joint custody of the children, who were minors at the time the divorce petition was filed. Maryanne and Joseph also agreed that Joseph would pay Maryanne child support in the amount of $8,500 per month for all three children (and not less than $4,000 per month for one child)—an amount that was based on Joseph's gross income of more than $800,000 per year related to his position at Stratagene Holding Corporation, Inc. (Stratagene), a company that Joseph founded. The child support was to commence in July 2002 or the first day of the month in which Maryanne and the children moved to San Diego, California. Joseph also agreed to pay Maryanne$12,000 per month in nonmodifiable spousal support for 120 months.

The MSA was made a judgment of the Wyoming court on March 28, 2003. The parties subsequently registered the MSA with the San Diego County Superior Court, and it was established as a judgment on November 21, 2005. ⁴

B. Procedural background1. Maryanne's motion to modify custody of the remaining minor child, modify child support, award attorney fees, and establish spousal support arrears

On August 24, 2007, Maryanne filed an order to show cause (OSC) seeking to modify the child custody and visitation arrangement for the parties' minor son, who was 14 years old at the time. Maryanne also requested modification of child support, as well as attorney fees, and spousal support arrears.

The parties retained Tony Yip as a joint expert to perform an analysis of the parties' income and assets.

Maryanne filed a schedule of assets and debts in July 2008, which showed that she had no debt, and that she had $14,237,593 in assets. In an income and expense declaration dated August 1, 2008, Maryanne indicated that she had $13.5 million in assets and $43,214 in monthly expenses.

Joseph's income and expense declaration demonstrated that he had sold Stratagene and no longer held his position at the company. His average monthly income included $10,980 in salary, $224,867 in dividends and interest, and $426,556 in investment and ordinary losses. Joseph listed his monthly expenses as $62,539.

Yip prepared an initial report in which he presented Joseph's income in two different ways, the first of which included Joseph's net losses from a number of start-up companies that he founded after selling his interest in Stratagene, and the second of which excluded those losses. Joseph objected to the second approach, and suggested to Yip that taking an approach that excluded his net losses would constitute “professional malpractice.” Joseph threatened Yip's firm with a lawsuit for damages that Joseph might suffer as a result of Yip's report.

Yip's firm appeared ex parte before the trial court, seeking guidance as to how to present Joseph's income in the report. The trial court ordered that Yip could present his report as Yip deemed necessary, and specifically, that Yip could include alternative approaches to determining Joseph's income.

In the final report, Yip noted that Joseph had received in excess of $100 million, before taxes, from the sale of his interest in Stratagene when he sold the company in 2007. Joseph used those funds for a number of purposes, including making capital contributions to several new start-up companies, purchasing real property, paying down mortgages, and paying income taxes. Joseph placed the remainder of the proceeds from the sale of Stratagene in various investment accounts. His portfolio balance as of December 31, 2008 was $63.6 million.

With respect to the companies that Joseph started in 2007, Yip noted that the companies experienced significant operating losses in 2007 and 2008. In Yip's final report, Yip presented Joseph's income usingthe same two methods that he had used in his initial report. Applying the first method to calculate Joseph's income, Yip included both income and losses from Joseph's start-up companies between June 2007 and December 2008. Using this method, Joseph had a net monthly loss of $9,100 in 2007, and a net monthly loss of $235,600 in 2008. Applying the second method, Yip excluded the losses from Joseph's start-up companies. Under this method, Joseph had a net monthly income of $320,800 in 2007, and $229,100 in 2008.

Yip did not analyze the detailed expenses of the start-up companies for possible personal and/or nonrecurring expenses. Yip explained that the reason he did not analyze the expenses was because he determined that if the trial court decided to include the $5.69 million in net losses over the relevant period for purposes of calculating support, then Joseph would have a net loss of $2.8 million in 2008 as the basis for support, and the “[a]dd backs” of personal and/or nonrecurring expenses, if they existed, would not result in a net positive number.

In addition to the income and/or losses from Joseph's start-up companies, Joseph had interest and dividend income of $1.9 million from June to December 2007, and $2.35 million from January to December 2008.

2. Maryanne's motion to compel and request for sanctions

In October 2008, Maryanne filed a motion to compel the production of documents and other information, and a request for sanctions against Joseph in the amount of $125,000. The request for sanctions was based, for the most part, on Joseph's “refus[al] to produce ... information and documents, and for providing false, evasive and misleading discovery responses to the parties' joint expert and Respondent's counsel.” Among the things that Maryanne complained of in her request for sanctions was that Joseph failed to disclose that he received more than $3 million in income during 2006, failed to disclose that he received more than $9 million in cash between January and June 2007 from the sale of Stratagene stock, and failed to disclose that he received more than $100 million in cash from the sale of his interest in Stratagene.

3. Yip's testimony

At the hearing, Yip testified about his final report, and explained the two different methods that he used to calculate Joseph's income for purposes of the report. Yip agreed that the expenses that appeared in Joseph's accountings for his start-up businesses were current operating expenses, and said that he had no reason to believe that the expenses were not legitimate business expenses. Yip also testified that he assumed that Joseph was operating all of the businesses with the intent of making them profitable, and that he understood the expenses to be “start-up” expenses not because they fit a particular Internal Revenue Code definition of a “start-up” expense, but because he viewed the companies as being at an early stage in their development. Yip further explained that he did not assume that Joseph was engaging in any of the businesses as a hobby...