Opinion
H028588 H029712
5-29-2007
In re Marriage of SHARON and JOHN CIOFFI. SHARON CIOFFI, Appellant, v. JOHN CIOFFI, Appellant. In re Marriage of SHARON O. CIOFFI and JOHN M. CIOFFI. SHARON O. CIOFFI, Appellant, v. JOHN M. CIOFFI, Respondent.
NOT TO BE PUBLISHED
In case No. H028588, appellant and cross-respondent Sharon Cioffi (Sharon) appeals from a judgment on reserved issues in a dissolution case. Cross-appellant and respondent John Cioffi (John) also appeals. Both parties raise issues regarding property distributed in the judgment. We conclude that the trial courts finding on the apportionment of certain stock options was ambiguous, and that there was insufficient evidence to support the trial courts finding that John waived his separate property interest in the proceeds from the options. Thus, the judgment is reversed.
In case No. H029712, Sharon appeals from an order that determined the equalization payment due under the judgment in case No. H028588. Since the judgment in case No. H028588 has been reversed, the order in this case must also be reversed.
This court has denied Sharons motion to consolidate appeals. However, this court will consider the appeals together for purposes of oral argument and decision.
Factual and Procedural Background
The parties were married on August 30, 1980, and separated on September 30, 1999. They have four children. Their youngest child was born in February 1999. The three older children attained majority by the time of the judgment.
John has been a professor at Stanford University since 1986. In 1991, he developed technology involving the transmission of information over telephone lines, and founded Amati Communications Corporation (Amati). In 1997, he sold Amati to Texas Instruments (TI). Sharon has also been employed during most of the marriage.
On November 23, 1999, Sharon filed a petition for dissolution of marriage. On June 22, 2000, judgment of dissolution as to status only was entered.
Prior to trial, the parties divided some of their community assets. In July 2000, each spouse received approximately $6.5 million from two accounts. The parties later divided the remaining $ 6 million. In September 2001, each spouse received one-half of approximately $476,086 from a construction lawsuit settlement. In April 2003, the parties divided additional community assets, including various shares and options. In October 2003, the parties confirmed that they had equally divided $13 million of TI stock, subject to Johns separate property claims.
The trial was held in January and February 2004. The parties litigated, among other things, three property issues: (1) whether the last tranche of TI stock options, which vested after the date of separation, was Johns separate property; (2) the characterization of payments made from the sale of TI stock; and (3) whether royalty payments from patents were community or separate property. They also litigated spousal and child support issues.
Discussion
Appeal (H028588)
Apportionment of TI Stock Options
Sharon first contends that the trial court erred in its apportionment of the fourth tranche of the TI stock options.
The statement of decision states in relevant part: "On November 30, 1995, [John] received non-qualified stock options to purchase 808,205 shares of Amati stock, vesting 25% (202,051 shares) per year on the anniversary of the grant date, namely 11/29/96, 11/29/97, 11/29/98 and 11/29/99. Each of the first three options was exercised, the only remaining option being the 11/29/99 option by the summer of 1999. [¶] . . . The 202,051 Amati stock options became 135,462 TI stock options (post split)."
Sharon argued that the fourth tranche of these options was community property, because it was acquired during the marriage. The trial court rejected her argument, reasoning that "[u]nder the terms of the option grant . . . employment was a key element."
John contended that the fourth tranche of the TI options was his separate property, because "he was required to satisfactorily perform four (4) distinct and important tasks to effectuate the vesting, and that the vesting would not have occurred without the satisfactory performance of those tasks, which occurred after the date of separation." The trial court rejected "that theory on the basis that the options were granted during marriage and required employment, which had been performed during the marriage until September 30, 1999, as well as the two months thereafter (November 30, 1999)."
The trial court resolved the issue by observing that both parties had alluded to a possible apportionment as five-sixths of the proceeds from the options were community property and one-sixth were separate property. It concluded that this was the "proper approach, but for the `February Memorandum."
We will first consider the issue of apportionment, and then the issue of whether John waived his right to claim a separate property interest in one-sixth of the TI stock in February 2000.
Generally, property acquired during the marriage is community property. (Fam. Code, § 760.) However, a spouses earnings after the date of separation are his or her separate property. (§ 771.)
All further statutory references are to the Family Code unless otherwise specified.
Relying on In re Marriage of Nelson (1986) 177 Cal.App.3d 150, Sharon argues that the trial court failed to apply the appropriate formula in apportioning the stock options, and "[i]nstead literally pick[ed] a result out of the air." Sharon points out that the date of grant was November 30, 1995. She then claims that, under the Nelson formula, the number of days from the date of grant to the date of separation divided by the number of days from the date of grant to the date of vesting resulted in 96.712 percent of the proceeds from the stock options as community property.
John claims that Sharon has waived this argument on appeal, because she failed to argue that application of the Nelson formula was required. There is no merit to this claim. Sharon raised this issue in her opening post-trial brief.
However, the Nelson formula is not mandated in all cases. The Nelson court itself recognized that "`no single rule or formula is applicable to every dissolution case involving employee stock options. Trial courts should be vested with broad discretion to fashion approaches which will achieve the most equitable results under the facts of each case." (In re Marriage of Nelson, supra, 177 Cal.App.3d 150, 155, quoting In re Marriage of Hug (1984) 154 Cal.App.3d 780, 792.)
Here it is undisputed that John received the grant of options during the marriage. The parties separated by the end of September 1999. At that time, John negotiated an agreement with TI to permit the vesting of the fourth tranche of his stock options on November 30, 1999. John continued as an employee of TI until November 30, 1999, and was required to meet four performance objectives. These objectives included: (1) influencing the formulation of international standards that would be favorable to TI; (2) assisting in the development of VDSL products; (3) providing customer and operator support; and (4) assisting TI counsel in resolving a lawsuit. In order to meet these objectives, John became the chair of the VDSL Alliance, which is a group of approximately 70 telecommunication and semiconductor companies in the world who promote technologies for VDSL, from October 1999 until early 2001. His work with the VDSL Alliance also allowed him to ensure that the quality of TIs product was very good and conformed to international standards. In addition, during the months following the parties separation, John was the key witness in a lawsuit brought by Electronics Communications of Israel (ECI) against TI. Thus, John performed substantial services for TI after the date of separation in exchange for TIs agreement to permit the fourth tranche of stock options to vest. Based on this evidence, the trial court could properly deviate from the time formula outlined in Nelson, and use a more equitable approach to award a greater proportion of the stock options to John as his separate property. (In re Marriage of Nelson, supra, 177 Cal.App.3d at p. 155.) However, the trial courts observation that the parties had alluded to a possible apportionment as five-sixths of the proceeds were community property and one-sixth were separate property was not supported by the evidence. It is unclear from the record whether the trial court would have apportioned the proceeds in this fashion absent its observations. Accordingly, we remand the matter for the trial court to reconsider this issue.
VDSL stands for very high speed digital subscriber line.
We turn now to the cross-appeal in which John challenges the trial courts finding that he waived his one-sixth interest in the fourth tranche of the TI stock in February 2000.
In February 2000, the parties counsel and Sharon signed a memorandum that stated: "To whom it may concern: [¶] James T. Danaher, attorney for John M. Cioffi, and Steven J. Cone, attorney for Sharon O. Cioffi, state as follows: [¶] 1. On January 31, 2000, our respective clients agreed that one-half of the Texas Instruments stock in their joint account with Salomon Smith Barney could be transferred to the personal account of Sharon O. Cioffi at Salomon Smith Barney (account 449-0G113) and one-half to the personal account of John M. Cioffi at Salomon Smith Barney. [¶] 2. The Texas Instruments stock in the personal account of Sharon O. Cioffi is her separate property and John M. Cioffi has no interest in that stock or the proceeds of any sale or transfer of that stock. [¶] 3. The Texas Instruments stock in the personal account of John M. Cioffi is his separate property and Sharon O. Cioffi has no interest in that stock or the proceeds of any sale or transfer of that stock." John did not sign the memorandum.
At trial, the parties and their counsel testified as to their understanding of the memorandum. Steven Cone, Sharons attorney at that time, testified that he proposed to James Danaher, Johns former attorney, that the parties divide some of their assets. Danaher replied that he needed to consult with his client. According to Cone, Danaher wanted to use the term separate property in the memorandum, because John did not want the stocks "subject to the courts or to the TROs that [were] in place." There was no discussion of either partys right of reimbursement in connection with the TI stock during their subsequent conversations. Cone then prepared the memorandum. Danaher testified that he had little recollection about the memorandum.
Sharon testified that the memorandum confirmed that the parties were splitting the fourth tranche of TI stock. She further testified that she had relied on the memorandums characterization of the stock as her separate property. She then cashed in some of the stock to pay her ongoing expenses.
John testified that he authorized the brokerage firm on January 31, 2000, to transfer the TI stock into the parties separate accounts. Johns broker had advised him to sell the stock, but he could not do so due to a court order prohibiting the parties from disposing of any assets. As of February 2000, John had not conducted any investigation to determine whether the fourth tranche of TI stock was community or separate property. In authorizing the division of this stock, he did not understand that he would be relinquishing his separate property interest in the stock under Sharons control. John also expected that the characterization of this asset would be resolved in the future.
In its statement of decision, the trial court noted that "[n]o Court Order was ever requested or made with respect to the memorandum itself," and that Johns attorney signed the document with apparent authority. The trial court also found that John "did nothing until much later in the litigation to express disagreement with the arrangement[,] . . . [and that he] initiated the action to effectuate the transfer" of the TI shares to Sharon and himself. The trial court concluded that Johns "actions constituted a waiver of any claim by [John] to any separate property claim related to the shares in question."
Sharon claims that there was a court order that reaffirmed the February Memorandum. She relies on a case management order dated June 7, 2000, which stated: "6. The parties shall now equally divide in kind all of the assets located in the following Salomon-Smith Barney and Goldman Sachs accounts: . . . [¶] D. Smith Barney, John M. Cioffi and Sharon O. Cioffi Ttees Cioffi Family Tr. U/A/D 03/14/96 Acct # 1 account #740-71459-16." While this order directed an in-kind division of the fourth tranche of the TI stock, it did not characterize them as the separate property of each spouse. However, there is a stipulation and order dated October 17, 2003. It states that the parties had previously divided $13 million of TI stock subject to Johns right to claim that the fourth tranche was his separate property. Thus, there is no merit to Sharons claim.
We first note that the trial court correctly found that the memorandum did not constitute a transmutation of Johns separate property to Sharons separate property. In order for transmutation of property to occur, certain formalities must be observed. Section 852 provides in relevant part: "A transmutation of . . . personal property is not valid unless made in writing by an express declaration that is made, joined in, consented to, or accepted by the spouse whose interest in the property is adversely affected." Our Supreme Court has held that "a writing signed by the adversely affect spouse is not an `express declaration for the purposes of section [852] unless it contains language which expressly states that the characterization or ownership of the property is being changed." (Estate of MacDonald (1990) 51 Cal.3d 262, 272.) Here the memorandum did not refer to any change in the characterization of the TI stock. Moreover, John did not sign it. Accordingly, no transmutation occurred under section 852.
We next consider the evidence to support the trial courts finding that John waived his right to claim that the stock was his separate property.
"The waiver of a legal right requires an intentional act with knowledge of the right being waived. (In re Marriage of Vomacka (1984) 36 Cal.3d 459, 469; In re Marriage of Perkal (1988) 203 Cal.App.3d 1198, 1203.) `There must be " . . . an actual intention to relinquish it or conduct so inconsistent with the intent to enforce that right in question as to induce a reasonable belief that it has been relinquished." [Citation.] (In re Marriage of Perkal, at p. 1203.)" (In re Marriage of Carpenter (2002) 100 Cal.App.4th 424, 428-429.) In reviewing the trial courts finding of waiver, we apply the substantial evidence standard. (Bickel v. City of Piedmont (1997) 16 Cal.4th 1040, 1053.)
Here the trial court relied on Johns action in directing the transfer of the TI stock into Sharons account as evidence that John had waived his separate property claim. At issue then is whether Johns conduct was so inconsistent with the intent to enforce his separate property rights that a person would reasonably believe that he had relinquished his right to that property.
The case of In re Marriage of Barneson (1999) 69 Cal.App.4th 583, is instructive. In Barneson, the husband authorized the transfer of separate property stock and securities into the wifes name and separate account. (Id. at pp. 586-587.) During dissolution proceedings, the husband then argued that the stock and securities remained his separate property. (Id. at p. 587.) The reviewing court held that the husbands direction to transfer the stock did not state that the characterization or ownership of the property was being changed, and thus it failed to meet the requirements of section 852. (Id. at p. 590.) The Barneson court observed that the husbands actions were subject to various interpretations, explaining that "[p]ossession [of property] is not synonymous with ownership . . . [and] [t]he fact that the term `transfer carries multiple definitions demonstrates the ambiguity in [the husbands] direction to `transfer stock." (Ibid.)
Under Barneson, Johns authorization to transfer the TI stock did not meet the requirements of section 852. Barnesons rationale also highlights the difficulty in finding waiver in the present case. Johns conduct is consistent with an intent to avoid the trial courts order and follow his brokers advice to sell the stock as well as an intent to transmute his separate property interest. Moreover, a finding that such conduct constituted a waiver of his separate property claim in these circumstances would completely circumvent the statutory mandate that there be "an express declaration . . . by the spouse whose interest in the property is adversely affected." (§ 852, subd. (a).) Section 852 was enacted "to remedy problems which arose when courts found transmutations on the basis of evidence the Legislature considered unreliable. To remedy these problems the Legislature decided that proof of transmutation should henceforth be in writing." (Estate of MacDonald, supra, 51 Cal.3d at p. 269.) In our view, the trial courts reliance on Johns ambiguous conduct in the present case resurrects the problems that the legislation was designed to preclude. While we agree that a spouse can waive his or her right to claim an ownership interest in a given property, any such waiver must be express and unambiguous. Here, Johns conduct in dividing the stock does not "`induce a reasonable belief that [his separate property claim] has been relinquished." (In re Marriage of Carpenter, supra, 100 Cal.App.4th at p. 429.) Sharon, in fact, concedes that "Johns carrying out of the February Memorandum was not in itself a `waiver[.]"
However, Sharon argues that "the totality of the circumstances indicate that there was a waiver" because she reasonably relied on the February Memorandum. Sharon does not explain how her reliance on the memorandum constitutes a waiver by John of his separate property claim.
Sharon also contends that Danahers signature on the memorandum supports the finding of waiver. There is no merit to this contention. An attorney has limited authority to impair his or her clients substantial rights. (See, e.g., Levy v. Superior Court (1995) 10 Cal.4th 578, 580 [A settlement agreement is unenforceable under Code of Civil Procedure section 664.6 when it is signed by a partys attorney, but not the party].)
The only other evidence relating to the issue of waiver was Johns testimony. He testified that, prior to authorizing the division of the TI stock, he had not conducted any investigation as to whether it was community or separate property, did not understand that he would be relinquishing his separate property interest in the stock under Sharons control, and believed that the characterization of this asset would be resolved in the future. This testimony does not support the trial courts finding. Thus, even if we consider the totality of the circumstances, that is, Sharons reliance on the memorandum, Danahers signature, and Johns ambiguous conduct in transferring the stock, there was insufficient evidence to support the trial courts finding that John waived his separate property claim to this stock.
Relying on language in the concurring opinion in In re Marriage of Benson (2005) 36 Cal.4th 1096 regarding a possible conflict between sections 852 (inter-spousal transmutation) and 721 (inter-spousal fiduciary duty), Sharon suggests that John unfairly gained a benefit by entering into "an illusory written agreement."
First, the concurring opinion of a Supreme Court justice has no precedential value. (People v. Ceballos (1974) 12 Cal.3d 470, 483.) Second, the trial court granted Johns in limine motion to exclude Sharons argument that John had breached his fiduciary duty to her, because Sharon failed to comply with discovery on that issue. Thus, since this issue was not litigated before the trial court, it may not be raised on appeal. (Mattco Forge, Inc. v. Arthur Young & Co. (1997) 52 Cal.App.4th 820, 847.)
Sharon also contends that John has committed "old fashioned fraud, which he is now trying to perpetrate through the appellate process." She refers to the fact that the February Memorandum states the TI stock was her separate property, but John "intended to argue that they were, in fact, his separate property." We need not consider Sharons contention relating to fraud, because she has provided no legal analysis or citation to case authority to support her position. (In re Marriage of Nichols (1994) 27 Cal.App.4th 661, 672-673, fn. 3.)
Sharon next advances an equitable estoppel argument. "Estoppel requires: (1) the party to be estopped knew the facts; (2) the other party was ignorant of the true facts; (3) the party intended his conduct would be acted upon, or acted in a manner that the party asserting the estoppel had a right to believe it so intended; and (4) the other party relied upon the conduct to his injury. Where one of the elements is missing, there can be no estoppel. [Citations.]" (In re Marriage of Thompson (1996) 41 Cal.App.4th 1049, 1061.) The existence of estoppel is a question for the trier of fact. (Mills v. Forestex Co. (2003) 108 Cal.App.4th 625, 652.)
As Sharon acknowledges, the trial court made no factual findings on the issue of equitable estoppel. Since the facts were disputed, this court cannot uphold the judgment on this theory.
In sum, we conclude that there was insufficient evidence to support the trial courts finding that John waived his one-sixth interest in the fourth tranche of the TI stock. Accordingly, we must reverse the judgment.
Characterization of Payments Made from the Sale of TI Stock
Sharon raises several issues relating to the characterization of payments made by John from the sale of TI stock. She contends that "it was prejudicial error and unethical for the trial judge to refuse to rule on a reserved, litigated $500,000 issue." She is referring to Johns transfer of $500,000 to Assia Oudina Cioffi in November 1999. Sharon also argues that the trial court committed numerous errors in ordering that John be reimbursed for the payment of the communitys share of taxes on the exercise of the TI stock options.
On November 29, 1999, John exercised the fourth tranche of 135,462 TI stock options. This stock was placed in a PaineWebber Investment Account. On the same day, John transferred $500,000 to Assia. This transfer was made from the same PaineWebber account.
Richard Wilkolaski, a certified public accountant, testified as an expert witness in accounting, tax preparation and taxes. He testified regarding the tax consequences associated with the exercise and sale of the fourth tranche of TI stock. He explained that the fourth tranche included 13,570 incentive stock options (ISO) and 121,892 non-qualified options (NQO). The two types of options were treated differently for tax purposes. When John exercised the 135,462 options in the fourth tranche, he sold 55,462 shares from the NQO category of these shares to pay the exercise price and the income tax due based on withholdings on all of the exercised shares. The exercise price for the 135,462 shares was $998,355. The total amount withheld and applied to the payment of taxes was $4,114,742.05.
This amount was less than the amount of taxes that was ultimately paid for those shares.
In December 1999, John sold 4,500 shares of TI stock for $465,573.21. According to Wilkolaski, this stock was also from the fourth tranche of TI stock. John used $445,000 of the proceeds to pay the parties joint state income taxes for 1999.
Mary Takaichi, a certified public accountant, testified that she prepared the 1999 joint tax return for the parties. According to Takaichi, the exercise of the 135,462 TI shares resulted in a taxable income of $11,607,170 and a tax liability of approximately $ 5,248,000. She also testified that the TI stock that John sold in December 1999 had been derived from the exercise of the fourth tranche.
In January 2000, John sold 11,500 shares of TI stock for $1,205,327. According to John, Wilkolaski, and Takaichi, these shares were derived from the exercise of the fourth tranche of options. John used the proceeds to pay a portion of the parties joint federal income taxes for 1999. The parties regarded the 11,500 shares as Johns separate property, since John reported the sale of these shares as taxable income on his 2000 income tax returns while Sharon did not. The taxes and exercise cost of the 11,500 shares was $530,265. Thus, John used $675,062 of the proceeds to pay community income taxes.
On appeal, John asserts that his income tax returns were never admitted into evidence. At trial, the following exchange occurred: "THE COURT: A-3 through D-3. Also double K, double L, double M and also double J. All four are to be admitted. [¶] (Whereupon, Respondents exhibits KK, LL, MM., JJ, tax returns, were admitted in evidence.) [¶] MS. WALD [Johns counsel]: I have that all the tax returns for Sharon for 2001, 2002 and the tax returns for John and A[]ssia for 2000 [Exh. NN], 2001[Exh. OO], Johns amended tax return for 2001 and the 2002 [Exh. QQ] tax returns have all been admitted. [¶] THE COURT: Those are the four that I just recited." Exhibits KK, LL, and MM are Sharons sole tax returns, and JJ is Sharons and Johns joint tax return. There was no objection by either party. Though the trial court referred to the wrong exhibits, its comments indicate that it had intended to admit Johns tax returns as evidence, and it referred to Johns tax returns in its statement of decision. Accordingly, we conclude that the trial court misspoke, and we will consider these exhibits as part of the evidence admitted at trial.
Following trial, the trial court issued a proposed statement of decision. In the proposed statement of decision, the trial court did not make any findings as to whether the $500,000 transfer to Assia was from Johns separate property. Regarding the fourth tranche of the TI stock, the trial court found that the February Memorandum "constituted a waiver of any claim by [John] to any separate property claim . . ." However, the trial court also found: "To the extent, if any, that [John] paid the exercise price and income taxes associated with the exercise of the 135,462 shares of TI stock from his separate property or his share of the shares sold, he is entitled to reimbursement under In re Marriage of Epstein (1979) 24 Cal.3d 76, namely one-half (1/2) of the amount so expended. The evidence is unclear as to whether [John] paid same from his separate property or his share of the shares sold."
John filed objections to the proposed statement of decision in which he argued that he had not waived any separate property interest in the TI stock prior to the February Memorandum. He claimed that even if the February Memorandum waived his one-sixth separate property interest in the fourth tranche, he had not waived his separate property interest prior to February 2000.
Sharon also filed objections in which she requested that the statement of decision include the factual and legal basis for the reimbursement to the community for Johns transfer of the $500,000 to Assia. No mention was made of the Epstein reimbursement.
On October 14, 2004, the trial court held a hearing on the proposed statement of decision. At that time, Sharon stated that the transfer of the $500,000 to Assia was not specifically addressed. She further argued that the funds came from a commingled account and thus were community property. In response, John stated that the TI stock that was sold in late 1999 was from Johns one-sixth separate property portion of the fourth tranche. He referred to Takaichis testimony that "when she did the parties tax return that — that the stock that was used and sold in 1999 was from the last tranche of options." The trial court stated: "I made no finding on the 500,000 transferred to Assia for two reasons. One was that I didnt feel it was addressed. Although it was alluded to several times. I also felt that we dealt with it earlier when we had our first week of trial . . . ."
On November 17, 2004, the trial court issued its statement of decision. The statement of decision retained the previously quoted passage from the proposed statement of decision relating to the Epstein reimbursement. It also added the following paragraph: "Inasmuch as [John] did not waive his entitlement to a one-sixth (1/6) separate property interest in the stock divided by the parties, due to the pre-February Memorandum implementation, five-sixths (5/6) of the TI stock is community property and one-sixth (1/6) is [Johns] separate property. The monetary share from the sale is to be adjusted accordingly, along with any tax adjustments." (Italics added.)
On January 6, 2005, the judgment was filed. The trial court referred to the source of the $500,000 transfer to Assia. It stated that Johns "separate property shares generated $943,316.52. . . . After reducing the $943,316.52 by the exercise price and taxes and the $500,000 paid to Assia Cioffi, . . ."
The judgment also states that John "is entitled to reimbursement pursuant to In re Marriage of Epstein (1979) 24 Cal.3d 76 in the amount of $367,410.34 for his separate property shares sold prior to February 2000 and used to pay community taxes." The judgment then provides detailed findings regarding the three sales of TI stock that occurred in November and December 1999 and January 2000. Essentially, the judgment computes the Epstein reimbursement by taking one-sixth of the proceeds from the November and December 1999 sales, then subtracting one-sixth of the exercise cost and taxes due on the parties joint income tax return. The amount of reimbursement relating to these sales is $59,758.39. The judgment then takes all of the proceeds from the January 2000 sale, and subtracts the entire exercise cost and amount of taxes for a total of $ 675,062.29. The judgment concludes that these sums were Johns separate property, which he used to pay the communitys taxes.
The judgment states in relevant part: "[Johns] reimbursement amount is determined as follows: On November 29, 1999 [John] received 135,462 TI options which he exercised generating total taxable income of $11,607,170. Based on the testimony of Richard Wilkolaski, the total exercise cost of the shares was $998,355. Trial Exhibit O. Thus, the exercise price for each option was $7.37. Trial Exhibit O. As testified by Sue Takaichi, the parties certified public accountant, who prepared their 1999 tax return, the total Federal and State Taxes on the $11,607,170 was $5,248,000. Thus, the taxes due on each share was $38.74. (135,462 shares divided by $5,248,000 total taxes.) [¶] From the exercise of the 135,462 options, 55,462 shares of TI stock were immediately sold. Of these shares, 1/6th or 9,243.67 shares, were [Johns] separate property. The 55,462 shares were sold to pay the income tax withholding and option exercise price for the entire exercise of 135,462 options. The taxes were paid directly from the sale and exercise of the shares. Mandatory federal tax (28%) and state tax (6%) were withheld, however, [Johns] actual tax bracket was 39.6% federal and 9.3% state. Trial Exhibit E2. The exercise price for the 135,462 shares was $998,355. The total amount withheld and applied for the payments of taxes was $4,114,742.05. [¶] Based on the foregoing, [Johns] separate property shares generated $ 943,316.52. The exercise price ($7.37 multiplied by 9,243.67) and the total taxes (not only those withheld in the November exercise — $38.74 multiplied by 9,243.67) due on [Johns] separate property shares sold was $426,225.63. After reducing the $943,316.52 by the exercise price and taxes and the $500,000 paid to Assia Cioffi, the remaining $17,090.89 was used to pay the exercise price and taxes on the community shares. [¶] On December 27, 1999, [John] sold another 4,500 shares of TI stock (now held in the joint Smith Barney account) for a total of $465,573 to pay Federal and State income taxes. Trial Exhibit V. As testified by Sue Takaichi, these 4,500 shares were sold from the final tranche of the TI options. Based on the Courts decision, one-sixth, or 750 shares, were [Johns] separate property. The total generated from the sale of [Johns] separate property was $77,250. After reducing the exercise cost of the options ($5,527.50) and the taxes ($29,055.00), the remaining $ 42,667.50 was used to pay taxes on the community shares sold. Both the November 1999 and the December 1999 sales were reported on the parties joint 1999 tax return. [¶] On January 14, 2000, [John] sold another 11,500 shares of TI stock for a total of $1,205,327.29. Trial Exhibit W. Sue Takaichi also testified that these 11,500 shares were sold from the final tranche of the TI options that vested in November 1999. These shares were [Johns] separate property shares. [Sharon] never reported the sale on her tax returns, which she would have done if the parties sold community shares. . . . [¶] The taxes and exercise cost of these 11,500 shares total $530,265, leaving $675,062.29 which was used to pay the communitys taxes."
On January 21, 2005 and February 9, 2005, Sharon filed two notices of motion to ". . . [c]onform the Judgment to the Statement of Decision." She argued that the judgment was inconsistent with the statement of decision. She referred to Johns Espstein claim as to the first three tranches of the TI stock, the date of separation, and "several other deficiencies." The notices of motion did not refer to the $500,000 transfer. John opposed Sharons motions on the grounds that they were unauthorized and untimely under the former California Rules of Court rule 232(d) and Code of Civil Procedure section 1008. John also argued that the notices of motion lacked specificity.
On February 18, 2005, the trial court held a hearing on Sharons motions. Sharon claimed that there was a discrepancy between the statement of decision and the judgment on the issue of the Epstein reimbursement claim that she did not understand. She argued that "[t]he additional calculations and all this other stuff thats put in that has no place in the judgment." The trial court responded that the calculations in the judgment were "left open to be determined based upon my statement of decision." It also noted that Sharons motions were improper. John offered Sharon the opportunity to file a proper notice of motion to set forth her specific objections to which he could then respond. Sharon accepted the offer. The matter was then set for a hearing on March 4, 2005.
On February 23, 2005, Sharon submitted "Objections to Judgment, Form, Modifications, and Procedures." She did not file a notice of motion. Regarding the $500,000 transfer, Sharon stated: "Further, [Johns] counsel improperly tries to bury the $500,000 after tax amount [John] wired to his paramour at the time, Assia Oudina, and unilaterally decides to perform some sort of offset without calculating in any interest due to [Sharon], including the principal owed to [Sharon]! [¶] None of the calculations on pages 4, 5, and 6 [regarding the Epstein reimbursement] are anywhere to be found in the proposed Statement of Decision. They are the product of counsels renewed arguments. Nowhere in the Statement of Decision does the court ask for such one-sided calculations." She also pointed out that the statement of decision indicated that the evidence was "unclear as to whether [John] paid [the commmunity income taxes] from his separate property [or] from his share of the shares sold."
On March 1, 2005, John submitted a declaration by his counsel in opposition to Sharons objections to the judgment. He noted that Sharons document was "not a proper motion, [was] not signed under penalty of perjury, and [did] not comply with the Courts order." He pointed out that Sharon had failed to provide alternate calculations regarding his right to separate property reimbursement claims. He also argued: "As set forth in the Judgment, and claimed throughout trial, he sent Assia Cioffi his separate property funds. [Sharon] is not entitled to reimbursement for separate property funds transferred or interest thereon."
On March 4, 2005, a hearing was held. Despite being given the opportunity to provide alternative calculations regarding the Epstein reimbursement claim, Sharon did not do so. She also did not refer to the $500,000 transfer. Following the hearing, the trial court overruled all of Sharons objections.
Transfer of $500,000
Sharon argues that "[r]efusing to decide the $500,000 issue which would have favored Sharon was a breach of the judges ethical and statutory duty to hear issues submitted to him."
When Sharon argued that the proposed statement of decision did not address the $500,000 transfer, the trial court indicated that it had made no finding on the issue. However, the trial court subsequently made the finding in the judgment. The judgment stated that Johns separate property shares in the TI stock generated $943,316.52. The judgment then reduced that amount by Johns share of the exercise price, taxes, and the $500,000 to Assia, and further stated that the remaining $17,090.89 was used to pay the exercise price and taxes on the community shares. Thus, the trial court found that John transferred $ 500,000 of his separate property to Assia after the date of separation. When Sharon objected to this portion of the judgment, the trial court overruled her objections. Accordingly, we reject Sharons argument that the trial court failed to decide the issue.
Epstein Reimbursement Claims
Sharon claims that there was insufficient evidence to support the trial courts finding that John paid the last quarter 1999 taxes with his separate property.
"[A]s a general rule, a spouse who, after separation of the parties, uses earnings or other separate funds to pay preexisting community obligations should be reimbursed therefor out of the community property upon dissolution." (In re Marriage of Epstein, supra, 24 Cal.3d 76, 84.)
"`Where, as here, the trial court is vested with discretionary powers, we review its ruling for an abuse of discretion. [Citation.] As long as the court exercised its discretion along legal lines, its decision will be affirmed on appeal if there is substantial evidence to support it. [Citation.] . . ." (In re Marriage of Geraci (2006) 144 Cal.App.4th 1278, 1286.)
When John exercised the TI stock options in November, the broker "took the taxes immediately and automatically." John also testified that he paid the communitys fourth quarter 1999 taxes from the sale of TI stock from the fourth tranche. He explained that he "instructed the banker, Dana Jackson, that we had a fourth quarter tax due and that [he] wanted to pay it . . . from this Texas Instrument stock that [he] had been transferring in." The bank then paid the taxes. Wilkolaski testified that he was able to trace the shares of TI stock sold in November and December 1999 and January 2000 back to the fourth tranche of 135,462 shares, because the cost basis for these three sales, which was used to calculate the amount of taxes to be paid, was consistent with the exercise of the fourth tranche of the TI stock options. Takaichi also testified that the December 1999 and January 2000 sales of TI stock were from the fourth tranche based on brokerage statements. The brokerage statements established that TI shares in November and December 1999 and January 2000 had been sold in the amounts to pay state and federal taxes. She also acknowledged that there were TI shares from options exercised prior to 1999 in these accounts. However, she explained that when she prepared the parties 1999 income tax returns, she stated that the shares from the fourth tranche were sold to pay community income taxes so that the parties would pay the least amount of taxes on the sales of the shares. The trial court could reasonably infer that the parties agreed with this representation when they submitted their income tax returns. The record also establishes that one-sixth of the shares sold in November and December 1999, and the 11,500 shares sold in January 2000 were Johns separate property. Thus, there was substantial evidence to support the trial courts finding that John paid the communitys taxes from his separate property interest in the fourth tranche of the TI stock. Accordingly, there was no error.
Sharon argues that the amount of the Epstein reimbursement is incorrect. She claims that the judgment credited John with more separate property shares than existed, and that the calculations involving the amount of tax per share erroneously included the ISO shares, which had no tax on exercise.
Where a party fails to bring an error in calculations to the trial courts attention, he or she has waived the issue on appeal. (In re Marriage of Whealon (1997) 53 Cal.App.4th 132, 144.)
Here Sharon made a procedurally incorrect motion in which she objected to the calculations in the judgment. The trial court then gave her the opportunity to file a motion that stated her specific objections and provided alternate calculations. She did not do so. She now asserts that her objection was adequate, because she pointed out that the statement of decision indicated that "the evidence [was] unclear," and thus, she reasoned that John had failed to meet his burden of proof. She argues that the alternate calculation was zero, though she did not make this argument at the hearing. In any event, Sharon has omitted that portion of the statement of decision providing that John was entitled to reimbursement "[t]o the extent, if any," that he paid the exercise price or taxes from his separate property. As the trial court explained at the first hearing on Sharons post-judgment objections, the judgment included the calculations that produced the amount of reimbursement that had been left open in the statement of decision. Thus, the judgment clarified any ambiguity created by the statement of decision, thereby rejecting Sharons claim that John had failed to meet his burden of proof on the issue. At the second hearing on her post-judgment objections, though the trial court had made it clear that John was entitled to an Epstein reimbursement, Sharon again failed to specify any objections relating to the calculations in the judgment. Consequently, she has waived any issue related to the calculations on Johns Epstein reimbursement claim.
Sharon also claims that the trial court erred in allowing Takaichi to testify as an expert witness.
Sharon objected to Takaichis testifying as an expert witness, because she was not disclosed as an expert. John responded that Takaichi would be testifying as a percipient witness, because she had prepared the parties joint income tax returns.
A lay witness may give testimony in the form of an opinion if it is "[r]ationally based on the perception of the witness" and if it is "[h]elpful to a clear understanding of his testimony." (Evid. Code, § 800.) We review the trial courts determination that such testimony is admissible under the abuse of discretion standard. (People v. Willis (1939) 30 Cal.App.2d 419, 423.)
Here Takaichi testified regarding how she prepared the parties joint 1999 income tax returns. She was a percipient witness to the documents that she prepared as well as the financial documentation provided by the parties. The fact that she identified the income generated by the fourth tranche of TI stock, applied an effective tax rate, and reported it on the returns, did not require that she be qualified as an expert witness. Thus, the trial court did not abuse its discretion in admitting this testimony. Moreover, even assuming error, there was no prejudice to Sharon. Wilkolaski also identified the November and December 1999 and January 2000 sales as derived from the fourth tranche of TI stock.
Sharon next argues that the trial courts calculations are contrary to tax and community property law. First, to the extent that she includes challenges to the calculations set forth in the judgment, as previously discussed, her argument is waived. Second, her reliance on the community expense presumption is misplaced. Under the community expense presumption, community expenses are presumed to have been paid during the marriage by community funds from an account that is commingled with separate property funds. (In re Marriage of Cochran (2001) 87 Cal.App.4th 1050, 1058.) The present case involves another presumption, that is, that a party who uses separate property to pay community debts after the date of separation is presumed not to have intended a gift to the community. (In re Marriage of Epstein, supra, 24 Cal.3d 76, 83-86.)
Royalty Income
Sharon contends that there was insufficient evidence to support the trial courts finding that one-half of the royalty income from patents granted during the marriage was community property, while one-half was Johns separate property.
In 1992, John and others developed DMT bit-swapping technology. This technology eventually contributed to the advent of DSL, that is, high speed computer digital communication over analog telephone lines. During the next three to four years, John and his co-inventors obtained four patents related to this technology, all prior to the date of separation.
DMT stands for discreet multi tone.
John testified that the patents had lost their value due to competing technology by 1999. Consequently, he engaged in post-separation efforts to maximize the royalty income derived from them. Central to this effort was recognition of the bit-swap patent as the standard in the industry. He acknowledged that organizations that determine DSL standards in North America and Europe recognized his bit-swapping technology prior to 1993. However, he explained that standardization was an ongoing process. As alternative technology developed, John promoted the use of the bit-swap patent by participating in seven standards organizations or industrial forums to ensure that his patents continued to function as the standard. As previously noted, he served as chair of the VDSL Alliance from late 1999 to the end of 2000. In early 2001, he became the editor and coordinator of the American National Standards Institutes Dynamic Spectrum Management regarding the evolving DSL standard.
After the standards were initially set, John then encouraged telephone companies to specify the use of his bit-swapping DMT technology in their purchasing requirements. He also encouraged modem manufacturers to produce this technology so that it would be available to telephone companies. As of the end of 1999, manufacturers had not yet made significant use of the technology. Thus, John contacted numerous telephone companies in North America, Europe and Asia, and spoke with people who were in powerful positions at those companies to ensure that they were aware of the technology and understood its merits. John documented his extensive contacts with telephone companies and manufacturers from October 1999 until the time of trial.
In early 2000, John also joined the Board of Directors of Integrated Telecom Express (IteX), which had over 80 percent of the DSL market in Korea in terms of DMT chip use. His role at this company was crucial to the promotion of his technology in the Korean market, because IteX was instrumental in "ramping up of the Korean market." During the second half of 2000, the market for modem manufacturers that used Johns technology expanded substantially in Korea. The market for Johns technology then spread to Japan, China, the United States, and Europe.
As previously noted, Johns post-separation efforts also included participation in lawsuits involving the patents. In 1998, ECI filed a lawsuit in which it sought to take ownership of the patents. It was resolved in 2001. In 2003, GlobeSpan Virata filed an action in which it made multiple claims, including that John was involved in a conspiracy to include the patents in the international standards and that the patents were invalid. This lawsuit was still ongoing. John was actively involved in the defense of both lawsuits.
Charles Johnson, a professor of electrical and computer engineering at Cornell University, testified as an expert in DSL and the significance of Johns work after 1999. He testified that it was "very important" for John to attend ongoing standards meetings to ensure that his technology remained the standard in the industry. Johnson summarized Johns numerous activities in this area. According to Johnson, it was "absolutely vital" that John promote his technology with modem manufacturers and telephone companies, because there was a competing technology that did not use bit-swapping. He also acknowledged Johns role in the two lawsuits. Johnson concluded that "[t]he chances of DMT as the sole standardized line code, which could substantially enhance the value of [Johns patents], would be nil without the intense efforts of [John] since 1999 . . . ." He added that "[t]here is no chance that DMT with bit-swapping would be under consideration as the sole format in the pending first VDSL standard except for [Johns] efforts since 1999."
John Hekman, an economist and expert witness, testified as to whether the royalty income received after September 30, 1999 was derived from Johns post-separation efforts. Hekman explained that a technology known as G 992.2 was recognized internationally as a DSL standard at the same time as Johns G 992.1. This competing technology made the use of bit-swapping technology optional, was less expensive, and did not require the payment of royalties. In Hekmans view, Johns success in convincing companies in a very competitive market that G 992.1 was worth the higher cost demonstrated the importance of his efforts. Though Hekman acknowledged that Johns pre-separation efforts were important, he concluded that there would have been no royalty income after the date of separation unless John had aggressively promoted his patents.
In its statement of decision, the trial court found: "The Court is satisfied that without the efforts of [John], post-separation, the royalties would not have been generated. However, it is also clear that without the `inventions the effort would never have occurred. [¶] There being no clear showing of `proportionate work, however, the court finds that one-half of the royalties generated with respect to the patents and associated licenses are separate property and one-half is community in nature. . . . [¶] Future income generated shall be based upon the three-quarters (3/4), one-quarter (1/4) formula, . . ."
We first consider the issue of waiver. John argues that Sharon has waived her arguments regarding the sufficiency of the evidence, because her factual presentation was improper. We agree.
Appellants who contend that there is insufficient evidence to support the judgment "`are required to set forth in their brief all the material evidence on the point and not merely their own evidence. Unless this is done the error is deemed waived. (Italics added.) [Citations.]" (Foreman & Clark Corp. v. Fallon (1971) 3 Cal.3d 875, 881; Nwosu v. Uba (2004) 122 Cal.App.4th 1229, 1246.)
Here Sharons factual presentation is rambling and argumentative. She sets forth only the evidence that supports her position, and none of the evidence regarding Johns post-separation efforts to promote the patents. Accordingly, she has waived her argument.
Even assuming the error has not been waived, there is no merit to her argument. In reviewing the trial courts findings regarding the characterization of property as separate or community, we apply the substantial evidence standard. (Beam v. Bank of America (1971) 6 Cal.3d 12, 25.) In doing so, we view the entire record in the light most favorable to the prevailing party. (In re Marriage of Duffy (2001) 91 Cal.App.4th 923, 931.)
Here the record establishes John developed the technology and obtained the patents during the marriage. Thus, these assets were community property. (§ 760.) However, John expended considerable efforts after the date of separation to maximize the royalties from these assets. His work with standards organizations ensured that his bit-swapping technology remained the standard in the industry. In Johnsons opinion, this technology would not have been considered as the sole format in the industry absent Johns work after 1999. John also promoted his technology with telephone companies and manufacturers, convincing them to use his technology rather than a competing technology that was less expensive. Hekman acknowledged that Johns pre-separation efforts were important in this area. However, he concluded that there would have been no royalty income after the date of separation unless John had aggressively promoted his patents. John also participated in the defense of lawsuits involving his patents. Thus, the evidence established that the patents would have produced little, if any, royalty income absent Johns post-separation efforts. Accordingly, there was substantial evidence to support the trial courts allocation of one-half of the royalties from the patents to the community and one-half to John as his separate property.
Sharon argues that there was no evidence of how much of the royalties were derived from Johns pre-separation versus his post-separation work. Here the evidence established that the patents had lost value by the end of 1999. Thus, the record would have supported a finding that John was entitled to all of the post-separation royalties. Instead, the trial court awarded one-half of the royalties to the community based on the fact that John developed the technology and obtained the patents during the marriage. Thus, we reject her argument.
Sharon also points out that the co-inventors received the same amount of royalties as John did, but they did not engage in any efforts to promote the technology. Thus, she reasons that Johns post-separation actions did not contribute to the amount of royalties, and that she was entitled to one-half of the income as a matter of law. Whether the co-inventors engaged in efforts to maximize the amount of royalties is irrelevant. As previously discussed, John carried his burden of establishing that his post-separation efforts had an impact on the amount of royalties generated after the date of separation.
Sharons reliance on In re Marriage of Worth (1987) 195 Cal.App.3d 768, does not support her position. In Worth, the husband wrote two books during the marriage and the parties agreed to divide the royalties from these books equally. (Id. at p. 771.) When the husband later brought a lawsuit for copyright infringement against the producers of a board game, the wife obtained an order in the trial court that she was entitled to one-half of any recovery in the lawsuit. (Ibid.) The reviewing court affirmed the trial courts ruling, stating that "[u]nder the community property doctrine, rents, issues and profits have the same character as the property source itself." (Id. at p. 774.) The court also observed that "[a] copyright has a present value based upon the ascertainable value of the underlying artistic work. Its value normally would not depend on the postmarital efforts of the authoring spouse but rather on the tangible benefits directly or indirectly associated with the literary product." (Id. at p. 775, second italics added.) In contrast to Worth, here there was substantial evidence that Johns post-separation actions maximized the amount of the royalties.
Conclusion
We have concluded that the trial courts finding on the apportionment of the fourth tranche of the TI stock options was ambiguous. We have also concluded that there was insufficient evidence to support the trial courts finding that John waived his separate property interest in the fourth tranche of TI stock. Accordingly, the judgment must be reversed. Since the amount of Johns assets and income may be affected, we remand the matter for the trial court to reconsider the issue of child and spousal support. We reject Sharons argument that there must be a retrial of all issues before a different judge. After careful review of the entire record, we conclude that Judge Brogdon acted in a fair and impartial manner during this seven-week trial.
Appeal (H029712)
While the appeal was pending in case No. H028588, the trial court issued an order finding, among other things, that John owed Sharon an equalizing payment of $28,954.73. Sharon does not dispute this amount. Instead, she challenges two other portions of the order.
Sharon first contends that the trial judge erred in personally retaining jurisdiction to hear all matters in the case.
Paragraph 5 of the order states that Judge Brogdon would hear all matters in this case ". . . at least until a decision by the court of appeals on the appeal taken by [Sharon] and the cross-appeal taken by [John]."
When the decision of the reviewing court cannot give the parties effectual relief, the case is moot. (Vant Rood v. County of Santa Clara (2003) 113 Cal.App.4th 549, 560.)
The challenged portion of the order is operative only while the related appeal in case No. H028588 is pending. Even if this court found that Judge Brogdons decision to retain jurisdiction was improper, this court will adjudicate the present appeal at the same time as the appeal in case No. H028588. Thus, our decision would have no practical effect. Accordingly, the case is moot and we dismiss this portion of Sharons appeal.
Sharon next asserts that "it is a felony to alter a filed pleading, and even if a pleading is ordered `struck from the record, it is error to direct a court clerk to remove it from the file."
Paragraph 4 of the order states: "The Court finds that the pleadings offered for filing by [Sharon] in opposition to [Johns] motion heard August 26, 2005 were untimely under CCP section 1005(b). Therefore, none of the pleadings offered by [Sharon] in opposition to [Johns] motion heard August 26, 2005 shall be filed with the court. To the extent that said documents were already filed with the court, they shall be stricken from the record with instructions to the court clerk to remove them from the file and return them to [Sharons] counsel. They shall not be part of the appellate record in this case." In these pleadings, Sharon requested that the trial court fix the amount of the equalizing payment under the judgment.
Despite this order, Sharons pleadings were included as part of the record on appeal. Sharon acknowledges that "[a]fter the record on appeal herein was filed, the supervising judge of the family court ordered that the pleadings not be removed from the file." Thus, the issue is moot, because any decision by this court would have no practical effect. Moreover, even assuming error, Sharon cannot establish prejudice. The pleadings at issue involve her calculations to determine the amounts due under the judgment. However, she challenges the amount of the equalization payment in case No. H029712 only in the event that the judgment in case No. H028588 is reversed. Since the pleadings are irrelevant to the outcome of the appeal in case No. H029712, she has failed to meet her burden of establishing prejudice. (In re Marriage of Steiner and Hosseini (2004) 117 Cal.App.4th 519, 524, 526-527.)
Sharon argues, however, that paragraph 4 of the order supports her request that this court direct that the matter be assigned to a trial judge other than Judge Brogdon in the event that the judgment is reversed. She claims that the "case ha[s] run completely off the track, and it needs a new judge." We deny this request.
Since the judgment in case No. H028588 has been reversed, the amount of the equalizing payment due under that judgment may be affected. Accordingly, the order setting the equalizing payment is reversed.
Disposition
The judgment in case No. H028588 is reversed. John is awarded his costs on appeal. The order in case No. H029712 is reversed. The parties are to bear their own costs on appeal.
We concur:
Bamattre-Manoukian, Acting P.J.
Duffy, J.