In a decision filed January 28, 2011, the Court of Appeal for the Second Appellate District held that, under CFC §1101(g), attorney fee awards are mandatory when a party breaches fiduciary duty by failing to disclose the transfer of a community asset into a separate account.

Los Angeles residents Sandra and Edward Fossum were married in 1994 and separated in November 2002. In Spring 2002, Sandra took a $24,000 cash advance on a community credit card, citing financial need, and she transferred the funds to her personal bank account. She did not disclose the transaction to Edward, who learned about it later. Edward asserted that at least half of the funds were spent on non-essentials including a horse trailer and a car for Sandra’s son.

Under §§721 and 1100, spouses have fiduciary duties to each other as to the management and control of community property. When, as happened here, the trial court finds a spouse has breached her fiduciary duty, but not in a manner rising to the level of sanctionable conduct under §271, nor by conduct rising to the level of fraud, malice, or oppression, §1101(g) governs the applicable remedies. §1101(g) states that its remedies “shall include, but [are] not limited to, an award to the other spouse of 50 percent, or an amount equal to 50 percent, of any asset undisclosed or transferred in breach of the fiduciary duty plus attorney’s fees and court costs.”

In a judgment issued January 2009, the trial court found Sandra had breached her statutory fiduciary duty to her spouse (CFC§721(b)) and ordered Sandra to reimburse half the charged amount ($12,000) to Edward Pursuant to §2030, the Court ordered Edward to pay Sandra $20,000 in attorney’s fees and rejected Edward’s request for fees from Sandra. Edward objected, and in its Statement of Decision, the court rejected Edward’s objection, observing that the remedy was in accord with §1101(g). Edward appealed the Court’s decision.

The appellate court determined that the trial court had been mistaken. “The language of §1101(g) is unambiguous and mandatory,” the court stated noting that the use of the word “shall” (as opposed to may) connotes mandatory action rather than discretionary acction. The court went on to cite

Citing Brewer & Frederici (2001), the appellate court stated that once a breach is shown, the trial court lacks discretion to deny an aggrieved spouse’s request for attorney’s fees. “Accordingly, the trial court lacked discretion to deny Edward’s fee request.” The matter was remanded back to the trial court to determine the amount of attorney’s fees to which Edward is entitled under §1101(g) for Sandra’s violation of §721.

Justice Rothschild gave a dissenting opinion, stating that 1101(g) is not self-executing, and as Edward never explicitly asked for attorney’s fees pursuant to 1101(g), he was not due any pursuant to that statute. Rothschild also recommended that 1101(g) be modified by the legislature to be discretionary, rather than mandatory stating that, “A mandatory award of attorney fees, imposed regardless of the value of the asset at issue and irrespective of need and ability to pay, is a harsh remedy for a violation that is merely technical and wholly innocent, as might often be the case, so it is unlikely the Legislature intended such a result.”

Full transcript of the Court’s decision can be found here.