As you know, I really like breach of fiduciary duty cases. Let’s face it–when a couple is getting divorced, it’s not easy to stay civil. But the duty of financial disclosure is strictly protected and enforced after separation, and with good reason. Hiding money makes an equal division of property impossible. Unequal expenditure of community money (for instance, if one party controls the community bank accounts and raids them as his/her private piggy bank) means a party is disadvantaged in Court, perhaps in life.
There are many remedies for breaching one’s fiduciary duty. I talked about them in a recent post. But a case just came down the pipe in which a remedy was clearly indicated and subsequently award, yet was overturned for procedural reasons at the appellate level. Here’s the story (filed 4/26/13):
Husband Robert Kahn failed to respond to discovery propounded by his wife, Jessie. Even after the trial court granted Jessie’s motion to compel, he still failed to respond. Jessie then filed a motion for terminating sanctions (this means that, as punishment for failing to respond, Roberts pleadings would be stricken from the record). Robert served responses, but they included numerous objections based on the Fifth Amendment, and they were clearly evasive.
As punishment, the trial court struck Robert’s responsive pleading. It was as if Robert had never responded at all in the marriage. Then the Court entered ROBERT’s default. The Court also also denied Robert’s motion to set aside the default. After a prove up hearing, the Court entered a default judgment, which, among other things, awarded Jessie $275,000 against Robert for breach of fiduciary duty.
The lesson so far? Don’t mess around with discovery.
But then things got interesting. Robert appealed on two grounds: 1) That the award exceeded the scope of the petition, and 2) That the award was not based on evidence.
The Court never got to #2, because it accepted Robert’s reasoning on #1. Let me explain. When a party fills out the petition for dissolution, he/she checks boxes indicating all the things he/she wants. In the event that the other party is defaulted (i.e. left out of the dissolution process), that petition is the only pleading that the Court has to go on, aside from the mostly boilerplate Declaration for Default or Uncontested Dissolution.
On her petition, Jessie checked the “other” box and wrote, ““Relief for [Robert’s] breach of fiduciary duty pursuant to Family Code sections 1100 et seq.” She did not specify any factual grounds, nor did she specify an amount sought. This is understandable as she filled out the petition at the beginning of the divorce process and could not have known the extent of Robert’s breach of fiduciary duty to disclose (which reached epic proportions by the end).
Nevertheless, no matter how odious Robert’s conduct, California Code of Civil Procedure §580(a) says: “The relief granted to the plaintiff, if there be no answer, cannot exceed that which he shall have demanded in his complaint.” “[A] default judgment greater than the amount specifically demanded is void as beyond the trial court’s jurisdiction.” (Greenup v. Rodman, supra, 42 Cal.3d at p. 826.) There are exceptions in family law, specifically in the event that community assets are listed in the petition but are not valued and no property division proposal is included; the state already knows how property must be divided: equally (In re Marriage of Andresen (1994) 28 Cal.App.4th 873).
But, the Kahn case is not an Andersen exception, the appellate Court found. The “other” category is too broad. “It is a catch all category; it could encompass practically any kind of relief, including relief that is not statutorily required in a marital dissolution action. The respondent is therefore entitled to notice of the specific nature and amount of any “[o]ther” relief sought before defaulting.”
The appellate Court remanded the default judgment back to the lower Court giving it the discretion to modify the default judgment to conform to Jessie’s complaint (cutting out the sanction provision) or vacating the entire judgment. The appellate Court noted that Jessie may actually prefer this outcome as she can then litigate her §1101 requests to the fullest; she might well be entitled to more than $275,000.
Default judgments aren’t uncommon. Be sure you know what boxes you’re checking and why before you file for divorce.
The full opinion can be found here.
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