Opinion
NOT TO BE PUBLISHED
Alameda County Super. Ct. No. RF04188931
RIVERA, J.
In this post-dissolution proceeding, William J. Ruch IV (husband) appeals from an order denying his motion pursuant to Family Code section 2556 seeking adjudication of an omitted asset. Respondent Brandy Mychals Ruch (wife) moves to dismiss the appeal and requests sanctions contending that the appeal is frivolous. We affirm the judgment and grant respondent’s request for sanctions.
I. FACTUAL BACKGROUND
The parties were married in 2001. Prior to marrying wife, husband had operated a chiropractic business, North Oakland Chiropractic (NOC) as a sole proprietorship. During the marriage, the parties formed Ruch Chiropractic, Inc. (RCI) to carry on the practice. The parties each owned 50 percent of the stock of RCI. After the parties separated, husband unilaterally decided to dissolve RCI and return to operating NOC as a sole proprietorship. Wife moved for a restraining order to enjoin husband from dissolving the corporation because she feared the dissolution could prevent her from having the business “valued and divided.” Husband opposed the motion, representing that he was simply reverting back to the form of business he had operated before his marriage and that the assets and any division of them would be available for the court’s disposition. Wife withdrew her motion based on husband’s representations. Before the dissolution of RCI the court had appointed an expert for the purpose of examining the cash flow of the chiropractic business and of husband’s related business activities.
Although the record contains few documents pertaining to the divorce proceedings, it is clear that husband had asserted, in the family law proceedings, inter alia, a claim that wife breached her fiduciary duty to RCI by misappropriating some of its funds. The parties thereafter engaged in a settlement conference that resolved the property issues, and reserved for later adjudication the issues of child and spousal support. Among other provisions, the settlement awarded NOC to husband, who assumed all obligations associated with the business. Any tax issue that might arise relating to RCI was specifically excluded from the settlement. The settlement was reduced to a stipulated judgment.
Following entry of the judgment, husband, using the corporate name RCI, filed a complaint for breach of fiduciary duty, fraud, and conversion against wife and her mother, Phyllis Parsons, in Contra Costa County. RCI alleged that wife had breached her fiduciary duty to RCI by misappropriating RCI monies for her personal use and for Parsons. Wife moved for nonsuit on the ground that the stipulated judgment in the family law action determined the issues raised by RCI’s complaint. The court granted a stay of the action to allow RCI an opportunity to litigate the issue of whether any assets were omitted from the family court judgment. The court remarked that it appeared that RCI’s lawsuit was “borderline frivolous.”
Husband thereafter filed a motion pursuant to Family Code section 2556 claiming that the issue of RCI’s assets and liabilities and wife’s liability for breach of fiduciary duty and misappropriation had not been decided in the stipulated judgment. Wife opposed the motion, contending that husband had asserted his current claims in the marital dissolution action and they were adjudicated as part of the stipulated judgment.
Family Code section 2556 provides, in pertinent part: “In a proceeding for dissolution of marriage, ... the court has continuing jurisdiction to award community estate assets or community estate liabilities to the parties that have not been previously adjudicated by a judgment in the proceeding. A party may file a post judgment motion or order to show cause in the proceeding in order to obtain adjudication of any community estate asset or liability omitted or not adjudicated by the judgment.”
The trial court-the same judge that supervised the settlement and entered judgment in the dissolution matter-denied husband’s motion, finding that RCI and its purported claim were not omitted from the stipulated judgment. The court ruled that husband had asserted “this identical claim characterized as a breach of fiduciary duty” in the dissolution action and that the settlement reflected an unequal division of community assets in his favor to compensate him for his claims against wife. The court concluded husband could not resurrect those claims “in the guise of claiming that RCI was an omitted asset” for four reasons: (1) RCI had already been dissolved, and its outstanding assets and liabilities were adjudicated. (2) The “tracing claims, ” that is, husband’s claim that wife had misappropriated funds from RCI, were not omitted assets but were encompassed by the family law litigation and judgment. (3) The only identifiable debt of RCI, its potential tax obligation, was specifically addressed in the judgment. (4) Husband could not identify any other asset or debt of RCI that was overlooked in the settlement and judgment. As explained by the trial court: “If [husband] was coming into court with some asset or debt of RCI that was previously unidentified (e.g., a checking account... or a lease obligation...), the analysis might be different, but here the claim that [wife] misappropriated funds was the overriding financial dispute in the dissolution action; rather than being ‘omitted’ it was the dispute.”
The Contra Costa County action was subsequently dismissed with prejudice.
We grant the parties’ respective requests for judicial notice of documents pertaining to the Contra Costa County litigation.
II. DISCUSSION
Wife moves to dismiss this appeal on the ground that it is frivolous as the issues concerning the division of the assets and liabilities of RCI were resolved by the stipulated judgment. Husband opposes the motion, arguing that nothing in the stipulated judgment reflects that RCI’s claims were settled by it. We consider the motion with this appeal.
Husband contends that the trial court erred in finding that it had previously adjudicated his claims concerning wife’s alleged misappropriation of funds from RCI. This assertion is untenable.
From the outset of the dissolution action both parties listed RCI as an asset, and wife attributed to RCI approximately $100,000 in accounts receivable. In the course of the proceedings, the court appointed an expert to address the cash flow of “[husband’s] chiropractic business” and a second expert to prepare a valuation of the business if such should be ordered. When RCI was thereafter unilaterally dissolved by husband, he alleged that the corporation had been a “mere sham used by [wife] to create an avenue to siphon off money.” RCI’s dissolution, husband assured the court, would “not affect the community asset of the practice” because he was “merely going back to the form of operation” that he had used for seventeen years (a sole proprietorship), and the assets would be available for “any division thereof, should the court decide at trial that it is appropriate.”
Approximately seven months later the parties reached a settlement on the property issues. The related order recites, “[b]oth parties agreed that the [settlement] reflects all the necessary terms of a [stipulated] judgment.” As has been noted, RCI’s potential tax obligations were expressly excluded from the settlement terms. In the settlement, husband received the entirety of the chiropractic business, i.e., “[t]he sole proprietorship known as North Oakland Chiropractic” as well as all existing IRA accounts (including that of his daughter), wife’s 401K account, and all funds held in attorney and expert accounts. The parties waived all their claims for reimbursement and for support arrears. The hearing on the stipulated judgment reflects that the parties knowingly compromised their respective claims.
Only one conclusion can be reached based upon this record: The parties resolved all issues relating to the chiropractic business, including husband’s claim that wife had misappropriated funds from the business when it was in its corporate form. As the court explained, husband’s claim-that wife misappropriated RCI’s funds-was “no different from a breach of fiduciary duty claim” asserted by husband during the dissolution proceedings, and the stipulated judgment reflected an adjudication of that claim, by awarding NOC to husband and, in addition, awarding him a disproportionate amount of the assets to meet any exposure wife may have had with respect to husband’s claims. The court found that the issues of RCI’s attorney fees and potential tax liability were also addressed by the stipulated judgment.
Elizabeth Principato-Phipps was husband’s counsel in the marital dissolution action and she pursued RCI’s tracing claims as part of that action. The court correctly determined that any fees owed her on behalf of RCI were the same fees incurred by husband in litigating the dissolution action. The stipulated judgment provided that any potential tax liability owed by RCI was reserved by the stipulated judgment. Husband does not here contend that there is an issue regarding RCI’s tax liability.
In support of his contention that the misappropriation dispute was not resolved, husband notes that the stipulated judgment does not contain any language mentioning the misappropriation of assets claim or the disposition of RCI’s assets. Husband further asserts that, when he and his counsel met with the court during a settlement conference they were informed the misappropriation claim could not be resolved in that forum. These contentions are feckless.
Only one month before the settlement conference, husband submitted to the court a ten-page summary of 33 documents raising numerous issues regarding tracing of funds used by wife and claims for reimbursement of those funds, including the specific claim of misappropriation at issue here. None of these claims are specifically mentioned in the stipulated judgment. Husband cannot and does not argue that all claims not expressly mentioned were omitted from the stipulated judgment, and there is no basis for concluding that one of the claims not expressly mentioned was omitted.
Husband nevertheless argues, “one would expect that the stipulation and judgment would have contained some language mentioning the [misappropriation] claim” if, as the trial court noted, the misappropriation claim was “ ‘the’ overriding issue at the time.” To the contrary, a party seeking to remove a significant disputed claim from the purview of a settlement in order to preserve it for litigation would be expected-if not required-to so state on the record, or in some other fashion communicate his position to the opposing party that theclaim is being excluded from the settlement. We find no such statement or communication in the record.
Nor can we attribute any meaning to the judgment’s silence with respect to the disposition of RCI’s assets and debts. RCI had been dissolved and the business was being carried on by husband as a sole proprietorship. The single debt identified (RCI’s potential tax liability) was specifically excluded from the judgment. The “hard assets” (business furniture) were taken over by husband, as were the accounts receivable. Husband could not identify any other asset or debt of the corporation (other than the disputed misappropriation claim) that required allocation. Accordingly, there were no RCI assets and debts to be divided.
Husband argues that it was error to conclude that “because the corporation was dissolved and [husband] began practicing as a sole proprietorship there was nothing left to divide.” He argues that these concurrent events did not “automatically or by operation of law” transfer the corporate assets to the sole proprietorship. Assuming this to be an accurate statement of law, it is of no moment. Husband himself represented that RCI’s business would simply be operating in a different form and that the “community asset of the practice” would not be affected. (Italics added.) Such a statement clearly implies that husband himself considered “the practice, ” and not the corporate entity, to be the community asset. Indeed, throughout the entire litigation husband has not identified a single asset or debt of RCI that should have been divided; rather he asserted only the misappropriation claim and brought that claim to the family law court for determination. That claim, along with all his other claims, were then resolved by way of settlement.
Finally, it is true that husband and his counsel submitted declarations in support of the Family Code section 2556 motion stating that the court informed them the RCI misappropriation issue “needed to be taken up elsewhere.” and “should be heard in an appropriate civil proceeding.” But these self-serving statements cannot be reconciled with the record, which we have already recapped, nor with the court’s finding that the misappropriation claim “was the overriding financial dispute in the dissolution action; rather than being ‘omitted’[;] it was the dispute.” There is simply nothing in the record of the family court proceeding indicating that the misappropriation issue was not resolved.
Husband cites to a number of cases, beginning with the seminal case of Henn v. Henn (1980) 26 Cal.3d 323, which held that collateral estoppel would not bar the post-judgment adjudication of omitted assets in a dissolution action. He argues that this line of cases holds that “if there was no evidence that the asset was adjudicated or divided by the court then it was an omitted asset.” This misrepresents those authorities. In none of the cases was an asset found to be omitted based on the fact there was “no evidence” that the asset was adjudicated; rather, in each case either the parties did not dispute that the asset had not been adjudicated, or there was affirmative evidence that the asset had not been adjudicated.
The other cited cases are Miller v. Miller (1981) 117 Cal.App.3d 366; Giovannoni v. Giovannoni (1981) 122 Cal.App.3d 666; Brunson v. Brunson (1985) 168 Cal.App.3d 786; Bowman v. Bowman (1985) 171 Cal.App.3d 148; and Huddleson v. Huddleson (1986) 187 Cal.App.3d 1564.
Henn v. Henn, supra, 26 Cal.3d at page 327 [husband conceded asset had not been adjudicated]; Huddleson v. Huddleson, supra, 187 Cal.App.3d at page 1567 [no contention asset was adjudicated]; Bowman v. Bowman, supra, 171 Cal.App.3d at pages 156-157 [same]; Brunson v. Brunson, supra, 168 Cal.App.3d at page 787 [asset not listed in pleadings]; Giovannoni v. Giovannoni, supra, 122 Cal.App.3d at page 672 [prior to judgment asset had been withdrawn from adjudication by mutual agreement]; Miller v. Miller, supra, 117 Cal.App.3d at pages 370-371 [asset was not “mentioned, placed in issue, or adjudicated nor divided”].
Having examined the merits of this appeal, we conclude that it is frivolous. We, thus, grant respondent’s motion for sanctions and treat it as a request for attorney fees under Family Code section 271. “Attorney fees are proper [when] a spouse engages in conduct that frustrates a settlement and increases the cost of litigation. (Fam. Code, § 271.) So too here. ‘[S]omewhere along the line, litigation must cease.’ [Citations.]” (In re Marriage of Mason (1996) 46 Cal.App.4th 1025, 1028.) Since it was necessary to examine the merits in order to decide whether this appeal was frivolous, we will affirm the judgment rather than dismiss the appeal. (See Jenks v. Lurie (1925) 195 Cal. 582, 584; Eisenberg et al., Cal. Practice Guide: Civil Appeals and Writs (The Rutter Group 2009) [¶] 5:36, pp. 5-16 to 5-17.)
III. DISPOSITION
The judgment is affirmed. The trial court shall determine the amount of attorney fees that husband shall pay to respondent. Respondent is to recover her costs on appeal.
We concur: RUVOLO, P.J., SEPULVEDA, J.